Can student daughter receive rental income?

[SarahHunt67]

Hi there

Please can someone help answer a question for me?

- Mum, dad, two daughters (21 & 20)
- Mum, dad and daughter 1 own (outright) a second property (daughter 2 was under 18 at time of purchase and we haven't got around to adding her name yet).
- Daughter 2 is going to university next month
- Property is about to be let out (after refurbishment) for £595 a month.

Is it possible for daughter 2 to receive the income from the property let while she is at university? I will be paying around that amount of money to her each month in support. It would seem to make sense for her to have the property income and offset it against her personal tax allowance.

Does she have to own a share of the property to receive the rent?

Thank you!

[Peter D]

Correct she needs to own a share of the property then you each ( parent ) re-direct the rental income to your daughter if this is unconditional. i.e she does not give it you back. Regards Peter

[SarahHunt67]

Thank you Peter! Does she need to own a certain % share, or can she own 25% and receive 100% of the income?

[SarahHunt67]

I just found this:

Income Tax - Property ownership and rental income

Should a property be owned by more than one person it is normal practice to agree the percentage share owned when the property is bought.

If our Mr X and Mr Y also jointly owned a rental property it would suggest that not only would they split the profit or loss on sale of the property equally, but would also share rental income arising from the ownership in the same proportion.

However the Revenue will accept a split of rental income at variance with the ownership of the property as long as all parties agree. So Mr X could be allocated 90% of the rental income and Mr Y 10%. This is a useful strategy to consider but it does not apply to a husband and wife who own a rental property.

In husband and wife situations it may be sensible for one party to receive the bulk of the rental income and pay tax at lower rates - thus creating an overall increase in post tax income for the family. But to gain the Revenue's approval the couple must own the property as tenants in common, and the percentage owned by each party has to be the same as the division of rental profits. So if Mr A and Mrs A own a rental property as tenants in common, 90% owned by Mrs A and 10% by Mr A, rental income and profits can only be split 90:10.

My understanding is that currently myself, hubby and daughter 1 own the property in equal shares. When we add daughter 2, she will own 25%. Will the 'tenants in common' rule apply? I wonder if I should just put it in the girls' names?

[Peter D]

The statement you have found is correct. However property owned by a married couple can alter the 'Beneficial Ownership' of the property via a Declaration of Trust without altering the title. Each parent can, by agreement direct the rental income to other owners of the property, so in your case your daughter/s.
Transferring the whole property to you daughters may be of benefit whilst the prices remain surpressed but it will give rise to a CGT liable on you, you need to run some numbers. You may wish to consider the IHT implications of this as although transferring the property would appear to remove it from your estate the potential IHT would remain in your estet for 7 whole years although Taper Relief would apply at 20% per year starting at the end of the third full year. Regards Peter

[SarahHunt67]

Thank you Peter! I will consider both options - putting her on the title and transferring the income, and transferring absolutely to both girls. I am only 43, so hopefully I'll live until I'm 50 and they won't pay IHT on it! lol

[SarahHunt67]

The whole idea of the post is to find out if my daughter can receive the income and pay tax on it herself, thus utilising her personal allowance while in Uni.

[section 44]

Yes she can but in order to do so she would first need to acquire a beneficial interest in the property (hence a disposal, or part disposal, of the beneficial interest held by one or more of the current proprietors). In addition to receiving a proportion of the rental income, she would hold a beneficial interest in the property (capital) going forwards.