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 ?