Tenants in common - Rental income - Non spouse

[Dev_1]

Hello,

I was wondering if someone would be able to answer the below as i am finding conflicting information online.

Essentially my mother and I own a property together as “tenants in common".

This was our family home once, the transfer of equity was completed whilst we were both living at the home together.

My mother owned the property in her sole name and later decided to add me to the title.

We continued to live at the property as a family for many more years.

In 2016 we moved out of this home together and it became a rental property.

i do not receive any of the rent which is paid and this is well documented through bank statements where the rent is paid directly to my mother.

This is an agreement that we have both made, i have no interest in the rental money as this for me is my mothers home and she added me to the title at the time.

The tenancy agreement has us both listed as the landlords however this was done as we believed that as the property is owned by the two of us we should both be listed on the tenancy agreement to avoid any issue which may later arise with the tenants or any other official body.

As my mother receives 100% of the rent and completes her tax return documenting this full rental income, is there anything i need to do in relation to this?

I want to ensure everything is done properly, i vaguely remember contacting HMRC a few years back in relation to this and i informed them that i do not receive any of the rent and therefore would i still need to complete a tax return. From what i remember i was told no that i didn’t need to.

please can anyone confirm if this is the case and if there is anything else we should be doing.

Kindest regards

[Dev_1]

Hello,

Any advice will be greatly appreciated, thank you all once again.

Regards

[AGoodman]

You haven't mentioned how or why you came to own 50%. Either way, the default position is that you own a share of the property and a share of the rent is payable to you under the tenancy agreement. You should be declaring your share of the income for tax. I'm not aware of any rule/precedent that says you don't pay tax on rent due to you if you allow another person to receive it but others may have other views.

I can only think of two ways around this for the future:

- if you first let the property to you mother for free, she could sublet it alone and keep 100% of the income
- you transfer the property into joint names and declare that you own the property 100% for your mother. You would be a a nominee/trustee for your mother. However, this is not compatible with a tenancy in common (by definition it means you each own a share of the beneficial interest in the property) so doesn't apply at the moment.

Incidentally (and sorry to be the bearer of more bad news), if you received your share as a gift from mother, the particular exemption for cohabitees will now have fallen away so the whole house will be treated as part of your mother's estate for IHT while she receives rent from your share (and for 7 years thereafter). If you inherited it from your father, or under a deed of variation, your fine.

[Dev_1]

Hello,

Thank you for your reply.

I am even more confused now.

The below is what HMRC say on their website?.

Jointly owned property - no partnership
Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.

I really don’t know now.

Kind regards

[maths]

If you and your mother are on the legal title AND each of you have beneficial interest in the property (you refer to tenants in common) which is rented out then in principle you would each be subject to income tax on your respective share of the rental income and would then each need to declare it on your own Tax Returns.

However you could, despite the above, have mutually agreed that all rental income would be that of your mother and you would receive no income. Only she would then declare it on her tax return.

[Dev_1]

Hi Maths thank you for your reply, you have kindly answered a few questions for me previously for which i am so grateful.

Comment by AGoodman is causing concern.

"Incidentally (and sorry to be the bearer of more bad news), if you received your share as a gift from mother, the particular exemption for cohabitees will now have fallen away so the whole house will be treated as part of your mother's estate for IHT while she receives rent from your share (and for 7 years thereafter). If you inherited it from your father, or under a deed of variation, your fine".

As it is correct my mother transferred equity of 50% to change title to tenants in common in 2010, at the time we both lived at the property together and shared the bills but as mentioned since 2016 we both moved out and the property became a rental.

I was under the impression that as 7 years have passed the 50% transfer of equity which she gave to me in 2010 would have been removed from her estate?.

Any ideas on this and what if anything we would need to do?.

kind regards

[maths]

Before struggling with the principles what are the numbers involved?

What is the total value of mother's estate (ie includes her own 50% interest in the property)?

What is the amount of the total annual rental income?

What is the total value of your estate (ie includes your own 50% interest in the property)?

[Dev_1]

Hi Maths,

Thank you for your time.

1:- 1st Rental property in mother’s sole name - £450,000. BTL mortgage of £195,000 ( interest only)
2:- 2nd rental property held as tenants in common, previous family home £450,000.
3:- Mother also has Savings with NSI to the value of £60,000
4:- mother also has a whole of life policy out into trust for £110,000

Apart from the above mother has no other assists.

Total annual rent from rental property in joint names is £22,800 as mentioned mother receives full rent and pays tax on the full rent received.

The total value of my estate would be my current home which I own solely in my name which is worth £475,000 plus half of property owned with mother which would be £225,000.

I work full time and have no other source of income.

Mother only received her rental income and has no other form of income.

Mother lives with me now.

Transfer of equity on the property held as tenants in common was completed in 2010 we moved out of this house in 2016, 6 years after the legal transfer of title was made.

Thank you once again for your help.

Kind regards

[Dev_1]

Hi Maths,

Out main concern is should there be a change to the current legislation around inheritance tax thresholds and policies therefore just wanted to be prepared. I appreciate it may not happen under the current government but could happen in the future.

There is no transferable nil rate band from my late father as he had a few assets in his sole name and did not have a will.

Hope the above assists.

Kind regards

[maths]

If no gift with reservation arose on your mother's part on her death re the 50% she gifted to you her estate would aggregate to 540k.

With her NRB 325k plus two lots of RNRB (ie 350k post 5.5.20) then no IHT arises.

With a gift with reservation estate becomes 765k. NRB plus two RNRBs gives 675k. IHT at 40% on 90k ie 36k.

As mother has moved out of property in which you now own 50% then in principle on date she moved out she ceased to have reserved any benefit in the 50% she gave to you.

However, although she no longer lives there she receives 100% of the rental income which includes the rent on the 50% you own. Presumably this is the bit to which AG is referring.
If therefore you receive 50% of there rents and mother receives 50% she no longer. has reserved any benefit on the 50% she gave to you; you will then of course be subject to income tax on your 50% rents.

50% of rent of 22,800 is 11,400. Income tax at 20%/40%/45% is 2,280/4,560/5,130 per tax year.

Bottom line seems to be :
(a) that if you leave all as currently then on mother's death IHT 36K.
(b) if you take 50% of rents then no IHT on mother's death (ie save 36k) but income tax charge increases annually as above; thus if mother died ion next 6 years your incearswed income tax charge would be 13,680/27,360/30,780.

Re above, (a) worse than (b) suggesting you the 50% of rents.

The above is intended as a guide and to provide info' to think about. Obviously, as time passes the property would increase in value at a greater rate than the NRB and RNRB increases if any ie IHT charge may increase quite significantly which might then suggest removing reservation by taking 50% of the rents.

The reservation of benefit provisions are complex and other contributors, in particular AG, may disagree with my analysis.