Rental Income

[naama32003@yahoo.co.]

To reduce rental income tax I decided to transfer my property to my wifes name before
the tax year 2002. By doing this I would pay no tax on that property as my wife does not
work. On the 2002/2003 tax return I did not declare any income on this property
as I decided to pass the full ownership of this property to my wife.

The problem with this is that the actual property was transfered to my wife in
Jan 2004. The inland revenue now want to inquire into my 2002/2003 tax return.

They already know I was getting rental income from this property from my previous tax returns.

Should I inform the revenue about this property as it was my intention to transfer
this property before Apr 2002?

Will I be liable to pay tax and penalties because the property was still in my name
and I was still receiving the rental income until Jan 2004?

What is the best way to handle this unfortunate situation with the inland revenue?

[King_Maker]

What steps did you take before 6 April 2002 to gift the property to your wife?

Did you tell her (preferably in front of witnesses)?

Is/was there a mortgage on the property?

I assume your wife did not complete a Tax Return showing the rental income? Perhaps because her total income was less than her allowances?

[naama32003@yahoo.co.]

The property was in joint names with my brother. The only witness to this is my brother and my family.

There is no mortgage on the property. The property is paid outright.

You are right my wife did not complete a tax return because the rent was less than her
personal allowance.

I do not know how to go about this. Do I tell the revenue about this or should I omit this information and tell the revenue should they enuire about it.

I really don't know what to do. Anyone out there please can you assist.

[King_Maker]

So the property is now in the joint names of your brother and his wife? I assume 50:50?

Has he included his share of the rent in his Tax Return?

What is the nature of the IR Enquiry?

[naama32003@yahoo.co.]

My brothers share of the property was also transfered to my wife so my wife is now the sole owner.

My brother did not fill in any tax returns because he has never worked and the rental income is less than his personal allowance.
So he is not liable to pay any income tax.

The Inland Revenue want to do a full enquiry into my 2002/ 2003 tax return and are asking to verify the figures I have put on the form. I have no problem with this.

I feel the inland revenue might want to know why I haven't declared the rental income for this property as I did in the 2001/2002 tax year.

Any suggestions how to go about this?

[King_Maker]

So your brother should be able to confirm your intention to gift your share to yout wife in 2001-02?

I assume your brother reviewed his CGT/IHT position in respect of his gift to your wife?

Did he transfer his share to her January 2004 also?

The main problem is did you, in fact, transfer beneficial (as opposed to legal)ownership to your wife in 2001-02. Obviously, mere intention is not sufficient. This would get over the problem that legal ownership transfer did not occur until January 2004.

An Oral Declaration of Trust, confirmed by a written Memorandum might suffice to evidence a transfer to your wife in 2001-02?

Once the facts are established about the rental income for 2002-03, you should be in a position to respond to the IR's Enquiry.

[naama32003@yahoo.co.]

Yes my brother transferd his share of the property at the same time as I did in Jan 2004.

Do you think I should inform the Inland Revenue about this property?

They are not asking about this property only the properties concerning the rental income on the 2002/2003 tax return.

[King_Maker]

Under Self Assessment, all your properties are treated as a single business. There is no need to itemise the rents and expenses for each individual property.

If you are satisfied that you were not the owner of the relevant property at 6 April 2002, there is no need for it to be included in your Property Rental accounts for 2003-03.

What about your brother's CGT?

[naama32003@yahoo.co.]

Yes I am satisfied i was not the owner of the property after 5 April 2002. The only thing is if I don't declare this to the IR they might check bank statements and they will see that I was receiving the rental income for that property. They might say I wasted their time or something as the investigation would of been alot easier had I told them??

Apart from that I don't really have a problem. Regarding my brothers CGT. My brother lived in the property for about 6 months so he can claim PPR relief and the next 36 months and I think letting relief. Also he will only pay half of the gain. I don't think there will be much to pay.

But I maybe wrong. The property was bought in Apr 1998 for £15000 and its now worth about £75000. I had my name added to the property Oct 1999.

If you can work out how much capital gains he might pay if any that would be great.

[King_Maker]

1. If you were not the owner in 2002-03, why did you receive the income?

2. I assume you received a share (50%?) of the rental income from 1999-00 to 2001-02, and this was included in your Tax Returns?

3. Your brother has 2 CGT disposals - the first to you in October 1999, and the second to your wife in January 2004. If PPR relief applies, the first disposal is likely to be fully exempt. Likewise the second disposal may be fully relieved, depending on the amounts involved. The MV in October 1999 and January 2004 is needed. Or did your brother gift his remaining share to your wife at the same time as you in 2001-02?

4. I assume there are good reason(s) why your brother has given away this property - and not to take advantage of your wife's lower income tax rates?