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Where Taxpayers and Advisers Meet

Tax liability on Rent from agreement date or transfer date?

HarryHowls
Posts:13
Joined:Wed Jul 30, 2014 1:48 pm
Tax liability on Rent from agreement date or transfer date?

Postby HarryHowls » Mon Nov 19, 2018 3:13 pm

Hi,

About 5 years ago (2014) I gave my son my old UK buy-to-let property. I don't live in the UK, which made the conveyance tricky as our conveyancer said he could not transfer it unless and until i came to the UK to do it. Therefore, my son and I agreed (and had notorised) an agreement that basically said that for all intents and purposes the flat is his and that we will make the transfer when we can/or if I die, whichever comes first (no stamp duty or CGT due). It also said all profits, expenses etc are therefore his from that point on.

As a result he has been paying tax from that date onwards on the income. We finally made the transfer a year ago, but now HMRC are asking me for tax between 2014-2018. I explained that for all intents the flat was given to my son in 2014 and that he has been paying tax but HMRC are having none of it. My son, bizarrely has been told he is liable too as he took the income as his (so no refund). We obviously cannot be taxed twice but HMRC keep flipping in their answers. Any idea?

Also, would CGT etc be at 2014 value (agreement date) or 2018 value (documented transfer date)?

I am aware how my laziness in making the transfer cause this problem, but I blame the conveyancer!

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Tax liability on Rent from agreement date or transfer date?

Postby maths » Mon Nov 19, 2018 5:10 pm

The key for UK income tax purposes (re rent) is who owns the beneficial interest in the property; not the legal title.

You appear initially to own legal title and the beneficial interest.

It may well be that back in 2014 the papers you had notarised are sufficient for you to have in effect declared that henceforth you own the legal title in trust for your son. If so, then he not you are subject to income tax on the rental income. I assume only your son from that date filed UK tax returns declaring the rents and any associated tax deductible costs.

A declaration of trust does not need itself to be in writing although it does need to be evidenced in writing which the papers to which you refer may well prove. The relevant legislation isn Law of Property Act 1925 s.53(1)(b).

If in 2014 the beneficial interest was transferred to your son no UK CGT would have arisen at that time as you were non-resident.

The conveyancer would in 2018 should have merely have transferred the legal title.

All depends upon the precise paperwork.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Tax liability on Rent from agreement date or transfer date?

Postby AGoodman » Mon Nov 19, 2018 5:41 pm

The 2014 advice is odd. If a freehold property you would only have had to sign a form TR1 and little more would have been required for a long leasehold.

It all turns on the wording of the document you signed so I would strongly recommend you show it to an adviser who can take it up properly with HMRC.

If the document did not achieve the aim of transferring the beneficial ownership to your son then he should be able to recover at least some of the income tax - in principle he can seek a repayment for up to 4 years from the end of the relevant year:

https://www.gov.uk/self-assessment-tax-returns/corrections#2

It's important to resolve it quickly because if the agreement didn't work, you would have made an NRCGT disposal in 2018 and need to file the necessary (online) return. As you will see from other threads, HMRC love to impose penalties for this.

HarryHowls
Posts:13
Joined:Wed Jul 30, 2014 1:48 pm

Re: Tax liability on Rent from agreement date or transfer date?

Postby HarryHowls » Wed Nov 21, 2018 2:45 pm

Thanks, and yes, only my son filed and declared tax from those dates. And there was no CGT due because the value had dropped since i bought it (due to overpaying before the financial crash coupled with a seriously deteriorating leasehold).

Thanks for this - I will try again with HMRC..

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Tax liability on Rent from agreement date or transfer date?

Postby AGoodman » Wed Nov 21, 2018 6:52 pm

Your first step should be to get a solicitor (or possibly accountant) to review the 2014 agreement to see whether it could be said to have transferred the beneficial ownership. That is the line you need to take with HMRC so you need to be sure it is correct. You want to ascertain a clear and correct (or at least strong) analysis and set it out for them clearly.

Either way, you should get an accountant (or possibly the solicitor) to write setting out the position.

Re: the CGT - if the 2014 agreement did not achieve a transfer of beneficial ownership to your son then the 2018 transfer was a disposal and you should have filed (or should now file) an NRCGT return. These are due irrespective of any gain and HMRC are not shy in levying penalties.


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