Rental income

[Oneisar]

Hi there
I am the sole legal owner of a property which was bought by my Dad many years ago. My Dad received all rental income and until he died suddenly a few months ago. My Dad was responsible for paying all maintenance costs too and declared all rental income on his tax return. I want the rental income to all be paid to my mother going forward and she will declare the income on her tax return. Is this all legal and correct please? I will in no way be benefitting from the property so presumably the beneficial owner will be my mother?
Many thanks for your help!

[maths]

I am the sole legal owner of a property which was bought by my Dad many years ago.

Why are you the sole legal owner if father purchased the property?

As sole legal owner did you execute a declaration of trust in father's favour?

[someone]

I'm guessing that the agreement re income with your father is pre april 2009.

Assuming your mother inherited everything then I would expect she inherited the income stream.

If not then it appears contentious whether the same arrangement can be created today. PIM1030 still exists but Transfers of income streams appears to say no.

In a recent call to the HMRC helpline I was told (incorrectly) that "the income can be shared in any proportion, HMRC dont care so long as it is declared" (incorrect due to query being about husband and wife) but this might indicate that HMRC still accept PIM1030.

[Oneisar]

Thank you very much for your replies.

My father purchased the property only in my name (I was living there as a student) over 20 years ago. All rental income from the property went to my father and he was responsible for all costs. Up until he died he was declaring rental income on his tax return (as a higher rate tax payer). I have had nothing to do with the property other than having my name on deeds.

Since my mother has inherited everything from my father and all rental income continues to be paid into the same (joint) bank account she shared with my father. I am unsure whether to declare the rental income on my next tax return or my mothers tax return. Is it right that I am the legal owner of the property but my father (and now mother) is the beneficial owner do should declare the income on her tax return?

Thank you again for your time and assistance.

[maths]

Presumably no mortgage was involved with the purchase?

Father provided 100% of purchase price?

Was the property mentioned in father's will?

[someone]

Oneisar,

Your situation sounds peculiar. Not impossible but peculiar.

Your father provided all the funds - was there a mortgage?

The legal title is in your name - why?

Your father received all the income. Did he have a beneficial interest in the income only or in the property too?

I'm amazed that the solicitor acting for you when you and your father acquired the property didn't get whatever agreement there was formalized. Today I suspect solicitors being asked to do a transaction like this would be very suspicious (potential money laundering if nothing else) but things were certainly more relaxed in the past.

If there was no formal agreement then it may be a case where actions speak louder than words. If your father always received the rental income, his estate passed to your mother, and now she receives the rental income then he was always entitled to it absolutely.

That doesn't answer the beneficial interest in the property. I think for land property there has to be a deed to transfer ownership therefore if such a deed doesn't exist then your father effectively made a gift to you at the point the property was purchased. (I have no idea if him keeping the income to himself makes this a gift with reservation or not)

But this is one for the lawyers. You may now, unfortunately, find it difficult to sort out as it's no longer possible for you and your father to jointly document what the agreement was.

[Oneisar]

Yes there was a mortgage which has now fully been paid off. My father made all monthly mortgage payments. He bought the house in my name as a gift as I was originally intending to live there permanently. But instead I ended up moving in with my now husband after a couple of years and instead of the house sitting empty my Dad rented it out and kept the income. I want my mum to continue receiving any rental income as a pension but want to make sure that there is no issue if the income is declared on her tax return instead of mine.

I am not sure what is meant by beneficial interest in the property but the property has been rented out to students so has not been occupied by my father or myself since I left.

Unfortunately my Dad did not have a will and died suddenly so our solicitor has drawn up a deed of variation to leave everything to my mother.

Thank you

[someone]

I'm afraid that your situation is so complicated that I cannot possibly give even a layman's understanding. Anything I say would just be a wild guess.

Just to clarify one thing though:

Legal interest - what is recorded at HMLR. You can download the title deeds for a small fee. It sounds like it's in your name only. (I'd be astonished if the legal interest wasn't in the same names as the mortgage was when you had one)

Beneficial interest - Who is entitled to the sale proceeds if the property is sold. Who is entitled to the rental income. (There are two different beneficial interests here that don't have to be the same)

Usually the legal and beneficial owners are all the same but it doesn't have to be the case.

===
I'm presuming there's a tax advantage to your mother declaring the rental income. If not then the simplest thing might be for you to declare the income and then gift it to your mother (who then won't have to pay any more tax on it). This would probably be a gift from income so would not affect your IHT position. My gut feeling is that your father shouldn't have been declaring the rental income (and presumably the mortgage was in your name so probably no deduction for mortgage interest should have been claimed if he did declare it). I'm not even sure why your father was entitled to rent it out based on what you have said.

[Oneisar]

Thank you for your replies, much appreciated. I will seek further advice on the situation to make sure everything is in order going forward.

[maths]

There are contradictions in your posts.

How did father get a mortgage when his name was not on the legal title?

If the property was purchased as a gift for you then any rental income prima facie is yours not father's and all costs are your liability not father's. A gift means that the real ownership (ie beneficial ownership) belongs to you not father in which case father could not leave property by will to surviving spouse. As he died intestate (ie without will) then, again, the property wasn't his to pass under the intestacy rules to mother whether directly or deed of variation.

Without paperwork it's difficult to unravel the precise position.