Shared rental income now unravelling!

by Readers Question

8:34 AM, 29th April 2016
About 2 years ago

Shared rental income now unravelling!

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Shared rental income now unravelling!

For a couple of years now, my unmarried partner and I have been sharing rental income from her old (leasehold) flat, which she owns outright. It never occurred to us that we couldn’t split the income in this way. It was a way of rewarding me for loss of rent-a-room income when she moved into my house with me.unravelling

Moreover we are both normally higher income payers, so we weren’t trying to reap a tax advantage. Now we have discovered, in the course of preparing wills, that for IHT purposes, HMRC would consider my share of rental income as a gift from her, and thus, we assume that she should have been declaring 100 per cent of the rental income on her own tax assessment.

We would like to go on splitting the rental income from this non-jointly owned property. Is there any way we can do this easily, and also, do we now have to retrospectively alter our self-employed tax assessment rental income for the past couple of years. In terms of what we find online, our case seems unusual, so I’ve come here for help.

Thanks

Neil



Comments

Neil Patterson

8:45 AM, 29th April 2016
About 2 years ago

Hi Neil,

Yes you are correct that without any documentation for tax purposes the rental income is your partners only. At least it is only for a couple of years and maybe only one completed tax year?

You obviously don't have an accountant so if your finances are more complex than simple salary and one BTL I would recommend seeking qualified regulated and insured advice before contacting HMRC.

Please also see our page on "Ownership restructuring for tax purposes" under our legal tab >> http://www.property118.com/ownership-restructuring-tax-purposes/

Puzzler

16:30 PM, 29th April 2016
About 2 years ago

Why is this a problem? All it means is that it is potentially not all exempt from her estate (a certain amount will be). Anything prior to 7 years before death is ignored anyway. You don't give your ages but is that a likely scenario? And if the worst should happen is it enough to make a difference to the beneficiaries? Note though that serial gifting (i.e. a further substantial gift within the seven years) extends the period to 14 years.

Presumably you are each declaring your share of the rent as currently received for income tax purposes?

You don't say how much the rent is, but would not it be better to have your partner pay some of the bills rather than give you rent?

Neil Stuart

14:52 PM, 30th April 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "29/04/2016 - 08:45":

Thanks very much, that's very helpful.

Neil Stuart

14:55 PM, 30th April 2016
About 2 years ago

Reply to the comment left by "Puzzler " at "29/04/2016 - 16:30":

Hi, thanks for your reply. It isn't the IHT we're so worried about, as the fact that I we have been, it seems incorrectly, splitting the income and declaring it as joint income to the Revenue. So we need to put that right and just wanted to know whether this was correct, ie, that you cannot split income if the property is wholly owned by one of the parties. We just need to nip this in the bud right away, as it were. Again, thanks very much for your thoughts re the IHT angle.

H B

8:03 AM, 1st May 2016
About 2 years ago

Reply to the comment left by "Neil Stuart" at "30/04/2016 - 14:55":

If it is her flat, the income produced is hers. She is still responsible for tax on all of the income generated. You received a gift.

It sounds as though you will have been over-paying tax related to this but she will have under-paid. The amounts should off -set each other, but it is best to correct them.

HMRC frowns on such informal arrangements as they are more likely to be tax dodges.


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