Who is taxable on the rental income...

If a trust owns the rental property but the tenant lets a room, who is taxed?

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A trust owns a residential property that's occupied by an individual beneficiary, who then decides to let out a room in the property.

If we accept that the trust is able to own this type of property, allows the beneficiary to live in it rent free and allows the beneficiary to let out a room if they wish, then rent a room relief should apply - if the receipts in the hands of the beneficiary are sufficiently low, then no tax to pay.  The rent a room rules state that an individual doesn't need to own their home to obtain rent a room relief on the income, so it seems we'd be ok on this front.

What if the trustees think that the trust should get the income and not the beneficiary as it's their property?  The rent a room relief is for the individual who lives in the property, and it makes sense that a trust couldn't physically occupy the property as their home/accomodation, so wouldn't qualify for rent a room relief (not meeting the conditions) so would have to be taxed on the normal basis if it received the rent.

Taking this one step further, the trust will qualify for PPR relief if the property is sold, but would it get lettings relief?  S.225 tells us that s.222 - s.224 can apply to a trust, so s.223(4) (lettings relief) is available.  The question is, if beneficiary lets the the room, does this count for s.223(4)?  It says 'any part' of' the dwelling house in question must be let, and also states it can be 'wholly or partly let' i.e. so just the one room being let seems to be covered. 

It seems that if we want the rent to be potentially tax free under rent a room, then the beneficiary must recieve the rent, but does this then prevent us getting within s.223(4)?  S.225 talks about when to substitute the word 'individual' for 'trustees' or 'beneficiary' in the prior legislation, and it does seem that s.225(2)(a) is saying that in circumstances regarding occupation, it's the beneficiary you look at.  If so, this would mean that the beneficiary gets rent a room relief and the trust gets lettings relief.

Any thoughts on whether rent a room is available to the beneficiary, and if so, whether the trust still gets lettings relief on a sale?

  

  

Replies (2)

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Portia profile image
By Portia Nina Levin
02nd Nov 2017 11:58

I think you probably need to resolve the legal issues, before you try and resolve the tax issues based on a presumption that you can choose what hats the various parties wear.

I think that once you've done that, the questions will answer themselves.

The legal analysis involves a consideration of the terms of the trust, and the beneficiary's occupation of the trust property.

However, if the trust is getting PPR by virtue of the beneficiary's occupation, I agree that it is letting by the beneficiary that will give rise to qualification for lettings relief, so you will need a proper legal analysis.

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Replying to sushant111:
By Ruddles
06th Nov 2017 09:17

I agree with Portia on the letting relief. Once you’ve established that PPR is available by virtue of the beneficiary’s occupation you simply read s223 replacing “individual” with “trustee”.

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