Rental income share

Reporting profit split from rental income

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My client is planning to give half  of rental property to 2 children but the children would like the parents to continue managing the property and recording 100% of the rental profits to keep things simple  (ie 2 returns to report rather than 4 if the children are involved). Is this possible?  I have reviewed the HMRC wording on the website is a bit vague when it is not spouse (50/50).   HMRC wording...Jointly-owned property....If a rental property is jointly-owned, the way in which the rental income is taxed will depend on the share of the property that each person owns.

However "Taxscout" website suggests the following:-

How do we choose a different split?

If you’re not married:

ask a lawyer to draft a Severance of Joint Ownership

file this with the Land Registry

you don’t need to file anything else with HMRC

just use the new percentages in your next Self Assessment tax return.

 

Welcome any suggestions on formal options on split to avoid any issues with HMRC....  Many thanks

Replies (7)

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Scooby
By gainsborough
05th Feb 2020 10:28

I don't see a contradiction here. If your client and his spouse are giving away 50% of the rental property, then each of the 2 children would own 25% and that would be the percentage to use on their returns.

Presumably your client is aware that this would be a disposal at market value for CGT purposes?

You don't mention whether the children are minors or not. If they are, the settlements legislation would kick in on the rental income anyway and be reportable on the parents' returns.

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By Tax Dragon
05th Feb 2020 11:57

Why do they want to do this? It might be simpler, cheaper and indeed more tax effective for mummy and daddy to give children some (I guess half) of their after-tax income from the property every year.

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paddle steamer
By DJKL
05th Feb 2020 12:02

I suspect some IHT planning but parents still need the income.

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Replying to DJKL:
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By Tax Dragon
05th Feb 2020 12:14

That was my guess - also that children are 40% taxpayers.

I was hoping to prompt the OP to think for him- or herself. When tax planning, thought is more useful than answers.

OP: think GWROB.

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Replying to DJKL:
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By Tax Dragon
05th Feb 2020 12:27

You're more sound than me on property taxes. Suppose the agreement was "give us half the property, you keep all the rents". Would the "you keep all the rents" part of the deal constitute consideration for SDLT purposes?

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Replying to Tax Dragon:
paddle steamer
By DJKL
05th Feb 2020 12:50

I tend to leave LBTT (our SDLT) re purchases to our various solicitors, it really has not come up much for us anyway as the last property we successfully purchased was 2007 and when we are selling it is not our problem- I tend to have slightly more involvement, at a superficial level, re leases, but as these are getting shorter and shorter and units are getting smaller and smaller it rarely features.

I suspect it would, a future right to all rents (to infinity?) sounds like consideration, how you value it (discounting) likely being akin to valuing an annuity. Interesting question.

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Red Leader
By Red Leader
05th Feb 2020 12:46

PIM1030 / not spouses:
"Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."

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