The interaction of PIM1030 [1] which suggests (unmarried) joint property owners can agree different shares of income from a property to their shares of the property and schedule 25 of the 2009 finance act[2] has been discussed here before[3]
But today I got to thinking about the market value of the income stream and whether it might be zero in the case of PIM1030 in which case there would be no income tax due by the transferor.
The nearest equivalent I can think of is the value of callable bonds. When these are actively callable, they tend to trade very close to par value. Where the income stream is lower than might be expected from an equivalent non-callable newly issued bond, they will trade at below par value while if the income stream is higher than you might expect they typically won't be worth much more than par value as there's too much risk of the issuer refinancing the debt at a better rate and calling the bond.
When a property income stream is transferred between owners "by agreement" where that agreement can be modified by either party back to the beneficial interest in the underlying property then the value of an interest in the property plus income stream will be very close to the value if no income transfer had occurred. Nobody would pay much extra for a 1% share in a property together with a 100% share of the income stream if they knew that the transferor could unilaterally reduce the income stream to 1%
Many declarations of trust include a clause enabling either party to force the sale of the underlying asset in order to recover their capital invested. Therefore, even if the transfer of income is irrevocable, the income is not guaranteed and has negligible value.
The market value of the transferred income stream, when structured in a manner similar to a callable bond, would necessarily be zero and there would be no income tax due on the transferor.
Thoughts?
[1] https://www.gov.uk/hmrc-internal-manual ... al/pim1030
[2] http://www.taxationweb.co.uk/forum/post ... 41#p156513
[3] http://www.legislation.gov.uk/cy/ukpga/ ... aragraph/7
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