tax on rental income

[bd6759]

I think pawncob means that trusts over land must be in writing (although not necessarily by deed)

[maths]

Without trying to be over pedantic, a declaration of trust over land does not itself need to be in writing.

All that is necessary is that such trust be evidenced in writing.

In my earlier comments I was implicitly assuming that the declaration of the bare trust would be by way of deed.

[pawncob]

I think maths agrees with me.

[Mha]

Thank you all for your advice.
I had a look at various trust forms. Do I fill sa900 or sa903?
Also maths mentioned "each of the children should file their own Tax Return in their own name" : can tax return be filed in children's name?
Kind regards

[AGoodman]

To weigh in and summarise (i.e. ignore the bits I disagree with):

Yes, 50% of the income (minus income expenses) will be mother's.

The other 50% depends. As the property came from father it seems v.likely that the income is deemed to be his while the children are under 18 (ITTOIA/S629). He would have to declare it on his return, pay the tax, and mother would have to reimburse him from the rental income.

The position could be more complicated if the children's interest is contingent on them reaching 18. If that's the case then strictly speaking you have a discretionary trust and you should be completing a sa900 trust tax return and paying 45% income tax on this 50% share. Father would still have to declare it on his own return as the income was paid out to his children (or for their benefit) but would get a tax credit for the 45% already paid. I assume the children could reclaim the balance of the tax (i.e. if father's liability is 40%, the children could reclaim the remaining 5%).

The terms on which the children's share is likely set out in the Court Order rather than any trust deed.

[maths]

For the rental income accruing to the children on their share of the property to fall subject to income tax on their father following the divorce requires an element of bounty (ie a settlement for income tax requires the settlor to provide bounty).

I suggest that this is not the case pursuant to the divorce where the father's dispositions would typically be following arm's length negotiations or perhaps pursuant to a court order.

[Mha]

Thanks maths. yes by court order there is no provision against ex/settlor. All tax are to be settled by either me as a trustee or by my daughter.
Please advise us which option is better financially. Daughter is basic rate tax payer whilst I am on higher rate.