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Where Taxpayers and Advisers Meet

Rental funds

Joined:Sun Jan 21, 2018 2:46 pm
Rental funds

Postby cedric01 » Thu Jan 25, 2018 9:04 pm

Bear with me - this is not specifically an issue of property. First some background:

My son is a med student in the UK. We have jointly purchased a 4 bedroom property in the town where he is studying with him putting up a third and my wife and I the balance. We have purchased cash (I have taken out a small mortgage which I will pay off when we sell another property which is currently rented out but becomes vacant in March at the end of the tenancy). Our plan is for our son to live rent free with three other students paying rent, one of which will go to him for living expenses, the other two to us out of which we will pay all of the overheads (electricity, gas, water, broadband and telecoms, cable TV and landlords insurance). The house is in his name and as a student household will be exempt from council tax.

He will not be liable for tax as the income to him will be barely £3K pa and I dont want him to struggle with HMRI tax returns at his age. I will be liable for tax on the income (minus expenses) as I currently and legally fill in on my tax return every year, no problem. I am a Director of my own company with a wife who holds a 50% shareholding and benefits from the HMRI ruling for persons who's sole income is dividend and I consequently do not wish to involve her as this would entail her surrendering her advantageous tax regime.

Problem: my son is (naturally I feel) reluctant to have one of his fellow students paying him as he does not wish to be uncomfortably burdened with the mantle of "Landlord" but how can we do this. If the income from all 3 students is paid into my account and I immediately disburse a third to my son, will I be liable for tax on that third as income - ie we will loose the tax liabilty free status of my son?

Is there any way we can get round this legally? For example, my son is of dual nationality and has a foreign passport in another name. Can we open a UK account in this name and pay into that?

We will eventually set up a separate business to run these properties but don't want to do that yet until we have sold the other house and saved enough funds to buy a second property - at the moment, life is complex enough!

Your advice would be gratefully appreciated.

Joined:Wed Aug 06, 2008 3:25 pm

Re: Rental funds

Postby maths » Sat Mar 03, 2018 10:07 pm

If the property is held in your son's name he holds as bare trustee the beneficial interest for himself, you and your wife in the ration of 1/3rd each.

The three of you can agree a split of rents and expenses as you choose. Any expenses allocated must be discharged by that person (not one or both of the other two).

Probably the practical approach is for the three of you to agree that you will be solely entitled to the income and all expenses. All rents should then be paid into a sole bank account of yours.

Gifts can then be made to your son but there should be no understanding that these will be made.

Joined:Wed Aug 06, 2008 3:33 pm

Re: Rental funds

Postby sandy2000 » Mon Mar 05, 2018 12:05 am

from the question it doesnt seem like Cedric wants to take the burden of tax on the entire income.
but Only for 2/3 of the income (wife and self), and son retaining entitlement on the 1/3 of the income (as it seems to be below 3k and under the allowance)
Will Gifting not increase the tax for Cedric and lose the allowance for the son?
I would have thought the practical approach would be to elect to have income split 1/3 son and 2/3 dad (beneficial interest), rent comes to dad's account (or dad and son's joint account) and 1/3 of the rents "given over" to the son - (not 100% sure but) if rental income is less than 4000 or there about, then SA tax returns may not be required for the son.

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