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Who is liable to the tax

Who is liable to the tax on a property

We received an enquiry and are unsure of the correct position. A lady owned a property approximately 9 years ago and became very ill to the extent she though she was going to die. For some reason she transferred the property into her two daughters names and the transfer was registered at Land Registry. The mother believed at the time a deed was drawn up onlong the lines that she could live in the property for the rest of her life or receive income from it. As she was very ill at the time, she moved into another house quite some distance away with her new partner. She rented the property out and received the income. She fortunately got better,  but then her partner became ill and subsequently died and she just remained living in his house and receiving the income. One of the daughter has two other properties she rents out,  but never declared the income from this property.

The question is, who is liable to pay the tax on the rental income of the property, the mother or the two daughters jointly?

Would HMRC accept that a verbal agreement was made and the mother was liable to the tax? If the mother declared the income, little or no tax would be payable,  but if the sisters declared it, more tax or even higher rate tax would be payable?

Any thoughts ?

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10th Aug 2018 12:41

If everything is as you say, then could it not be argued that the daughter were renting the property to the mother for free, and the mother was then sub-letting the property.

If the daughters haven't received any of the money, that's the argument I would put across to HMRC.

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10th Aug 2018 13:34

There are loads of questions on this here. See:

https://www.accountingweb.co.uk/any-answers/who-is-the-beneficial-owner

https://www.accountingweb.co.uk/any-answers/property-tax-who-pays-owner-...

You probably cannot argue there is a lease (without writing, see s2 Law of Property (Miscellaneous Provisions) Act 1989 https://www.legislation.gov.uk/ukpga/1989/34
) unless within the exceptions in the link below:

http://www.propertylawuk.net/propertytransactionswriting.html

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to Justin Bryant
10th Aug 2018 14:07

I'm sure there will be paperwork somewhere testifying to the lease. Wink wink.

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10th Aug 2018 14:35

This

BirdnCo wrote:

...a deed was drawn up onlong the lines that she could live in the property for the rest of her life or receive income from it.


IMO distinguishes this case from many of the others. If correct, that is a disposition immediately chargeable to IHT giving rise to a settlor interested life interest trust. The income is taxable on the settlor (Mother) but collectible, up to basic rate, from the trustees (the daughters). You would argue that the trustees had mandated the income to the beneficiary and that the reporting responsibility thereby fell on her.
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to Tax Dragon
10th Aug 2018 16:04

There is no distinction, since the central (only) question is one of intention of the parties as I clearly state in those other cases. See: https://hsfnotes.com/pwtd/2017/09/07/privy-council-considers-proper-appr...

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to Justin Bryant
10th Aug 2018 16:28

Your ability to read whatever you feel like reading into random cases that are occasionally informative but never binding and to state your reading as if it were law never ceases to amaze me, even though it's all you ever do.

At the least, would you not agree that where there is one settlor and a deed of trust then that is pretty persuasive as to intention?

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to Tax Dragon
10th Aug 2018 17:27

The common intention point is clearly stated in that case in the above link as well as my previous posts. If the daughters & mother agree your trust or whatever else is what was intended then clearly that is the beginning & end of the matter. What is hard to understand about that?

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to Justin Bryant
10th Aug 2018 18:16

Who said anything was hard to understand? It's your propensity for reading the world into one sentence of dicta that amazes.

Here, to be fair, you haven't done that. Your citation was though of a Bajan case, so is not binding in the UK. Which is what I said above. Why's that so hard for you to understand? (I'm not disputing your point btw - just caveating it.)

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By BirdnCo
10th Aug 2018 16:47

Thanks for all your replies, but I didn't make it clear, the mother only thought there was a deed allowing her to live in the property or receive any income therefrom, but there is no actual deed. Perhaps there was a verbal agreement between mother and the two daughters, I don't know yet.

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10th Aug 2018 18:19

One point that seems common to many of these cases (the ones that get asked in Aweb, I mean, not the ones Justin references) is that, having supposedly given the title of the property away, the client then lets it out and receives the income. How does that happen?

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to Tax Dragon
11th Aug 2018 14:11

I'm just guessing - but I reckon it'll be because the daughters don't want to sue their elderly mother.

Anyway, we don't actually know what was agreed yet.

Or, indeed, if anything was agreed.

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