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Where Taxpayers and Advisers Meet

Who pays tax on rental income

Posts: 51
Joined: Wed Aug 06, 2008 3:16 pm

Who pays tax on rental income

Postby dotto » Sat Nov 02, 2019 4:26 pm

We completed a self build house earlier this year as a family venture. This house is in my eldest son's name (there are promissory notes for loans on the house - one in my name and one in my youngest son's name each one amounting to around 17% each of the current market value) and we now rent it out. We had agreed that my youngest sone would receive the rent as an income and it is intended he declares this on his self assessment form next year. Can anyone confirm please that it is ok for my youngest son to receive the rent when he doesn't own the property. There is no mortgage on the property.

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Joined: Wed Aug 06, 2008 3:41 pm

Re: Who pays tax on rental income

Postby GARDNER4 » Sat Nov 02, 2019 10:53 pm

There should be no problem your youngest son getting the rent, however I strongly advise you notify hmrc in writing of this agreement

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Joined: Wed Aug 06, 2008 3:16 pm

Re: Who pays tax on rental income

Postby dotto » Sun Nov 03, 2019 3:44 am

Thank you for your response. I had a further search on the internet re my question and got the impression that it has to be the actual owner of the property who declares the rent. Do you know whether this is the case. We are all basic rate taxpayers, with my eldest son earning the most (the rent would not take him into the higher tax bracket, then my youngest son and then me with my pension, so we are not trying to avoid tax in any way. Thank you again for your help.

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Joined: Tue Sep 26, 2017 6:28 pm

Re: Who pays tax on rental income

Postby AdamS93 » Sun Nov 03, 2019 12:29 pm

The beneficial owner of the property will declare the rental income. You cannot choose you declares the income.

It looks like your eldest son is the beneficial owner. If he were to transfer the property to his brother, then there will be all sorts of CGT/Stamp Duty Land Tax/Income tax issues.

You need professional advice.

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Re: Who pays tax on rental income

Postby jerome.lane » Mon Nov 04, 2019 10:28 am

It sounds like there could be an informal partnership relationship in existence. If so, it should be possible to allocate income according to an annual partnership decision although you should formalise and document the arrangement. HMRC tend to take a pragmatic approach on challenging family partnerships where profit division appears to be made to achieve tax efficiency. Depending on the youngest's age, settlements legislation could have an impact. You should take professional advice on what you are trying to achieve.
Jerome Lane
Tax Adviser
Telephone: 07943 005902

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Re: Who pays tax on rental income

Postby maths » Mon Nov 04, 2019 4:07 pm

To be subject to income tax on rental income requires, of course, that the income is in fact rental income and the person assessed is either entitled to the income or de facto receives.

In practice HMRC would assess the person entitled ie the person(s) possessing beneficial interests.

The eldest son's name appears at LR as the registered/legal owner. Was there no declaration of trust confirming who the sonholds the legal title on behalf of?

If not, then in principle beneficial title follows legal ownership.

It's not feasible to simply dictate that youngest son is subject to tax on the rental income.

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