Jointly owned & Rental Income

[Peter D]

Beneficial ownership gives your sister entitlement to all the income from the property. In the longer term it also entitles her to the proceeds of any disposal but as you remain the 50% legal owner she can not dispose of your share. Prior to any 'exchange of contract' you vary the beneficial declaration to 50/50. I doubt that HMRC would bother to check on this but it is good to have it on file. Regards Peter

[section 44]

If you do intend to pass the beneficial interest in the property to your sister then you should make a declaration of trust, executed as a deed, rather than use a simple letter.

[maths]

Presumably your mother left the house to each of you equally.

If so then when the executors assent (ie transfer) the property to you both you should request that the legal title is transferred into both names and that the beneficial interests are held as tenants in common ((this means that you can each leave your 50% beneficial interest in your wills; if held as joint tenants then on death of one of you the other automatically inherits).

Once this is done then if the property is rented you will each be subject to income tax on the rents 50/50 which is not what you appear to want.

You can then both agree that 100% of the rents belong to your sister and she is also to bear any expenses associated with the property. This could be done by a simple document which contains the relevant details and you both sign and date.

The rents should then be paid into sister's account not a joint account with you out of which expenses are incurred. She declares the rents/expenses on her Tax Return; you return nothing.

[Incredulum]

It seems several options are possible, depending on your desired outcome. Some may be more beneficial from a tax perspective than the simplest options.

1. You use an instrument of variation to vary your mother's will. That way your sister is treated as if she inherited the property from your mother, and you were never involved. She therefore has outright ownership of the property and the rent.

2. You inherit the property 50:50. You give her the right to 100% of the rental income, but not the capital. She is then taxed on 100% of the rental income. This can be done with a simple letter of the form PeterD suggests. Beware, if she is entitled to benefits this may affect her position. Beware also the UAE tax position; the UAE may not permit you to give away your income in this fashion.

3. You inherit the property 50:50. You maintain your right to 50% of the rental income. You complete your tax return, and as a British national who is non-resident you are entitled to a tax-free personal allowance of £7,475, so depending on the size of the property you may not pay any UK tax at all and the tax you do pay will be at 20%. I do not know whether you would be expected to pay additional tax in the UAE on your UK rental income, but I'd guess that you possibly don't, the UAE being the UAE. You could then gift cash to your sister - which might coincidentally be similar to the value of your rent - and she would not pay any additional tax.

4. You inherit the property 50:50. You follow the analysis in '3' above but you have unutilised tax free allowance. Your sister therefore gives you rights to in excess of 50% of the rental income which you can receive tax free. You may then choose to make a larger cash gift to your sister. Is this aggresive tax planning? Possibly a bit.

Bear in mind what happens when the property is disposed of. As a non-UK resident (provided you have been for years and plan to remain so) you will not pay any UK CGT. So if you own the vast majority of the capital, and your sister is entitled to the (vast majority) of the income, this may also help. Again, you would need to check the UAE position.

[armani]

Hello Again

Thank you all for the advice.

Yes there's a few ideas here, some very clever once I understood, some maybe a little agressive as you said.

I think simple maybe easier but less profitable?

I'llhave too have a closer look at UAE tax implications also.

Thank you once again

Armani

[Peter D]

Capital gains tax is not imposed on individuals in the UAE.
In fact here is no Income Tax either imposed on individuals in the UAE.

Regards Peter