Limiting tax payable on rental income

superpup

Hi

Quick bit of background: I've given up work as I'm caring for my Nan who now lives with me. We survive on her pension etc, my carer's allowance and £30 per week from a part time job. Agency has found tenants for her house.

I understand it would be better to get my Nan to sign over 1% of her house to me and then have a large proportion of the rental income paid to me as I wouldn't have to pay as much tax as she would. (I've discussed it with her and she thinks it's a good idea.)

Does anyone know roughly how much it would cost to get a solicitor to do this please? Money is tight until we start to see some of the rental income but if we can save some of the money I would rather get the ball rolling now.

thanks

MarkyMarkD

Transferring 1% ownership of the house will transfer 1% of the rental income to you, so be a waste of effort.

If your Nan has moved in with you and you are caring for her, why doesn't she simply give you the house outright and then all of the income is yours?

The legal costs for a transfer of ownership shouldn't be that high if there is no mortgage involved but I'd suggest getting a few quotes. I strongly suggest that going for joint ownership is just an unncecessary additional faff.

superpup

MarkyMarkD wrote: »

Transferring 1% ownership of the house will transfer 1% of the rental income to you, so be a waste of effort.

If your Nan has moved in with you and you are caring for her, why doesn't she simply give you the house outright and then all of the income is yours?

The legal costs for a transfer of ownership shouldn't be that high if there is no mortgage involved but I'd suggest getting a few quotes. I strongly suggest that going for joint ownership is just an unncecessary additional faff.

Thanks for your reply but I'm not sure you're correct on the 1% of rental income. I believe that you can proportion the income however you like as long as both own the property (I don't think it matters how much).

I don't want her to give me the house outright. First reason being that half of it will be my Dad's eventually. The main reason is that in the unlikely event that she would need to go into a home (I hope this will never need to happen), then we could get into trouble for deprivation of assets.

Pennywise

superpup wrote: »

Thanks for your reply but I'm not sure you're correct on the 1% of rental income. I believe that you can proportion the income however you like as long as both own the property (I don't think it matters how much).

You're right there. It's only married couples where you have no choice but to split the income exactly according to beneficial ownership shares. In the case of unmarried co-owners, it's taxed according to the proportion of rent received by each owner, so as long as the OP gets 99% of the net income, then they'll be taxed on that amount, regardless of the exact ownership proportion. Quite an anomaly which doesn't really make sense, but there you go - beneficial for some, not so for others!

MarkyMarkD

superpup wrote: »

Thanks for your reply but I'm not sure you're correct on the 1% of rental income. I believe that you can proportion the income however you like as long as both own the property (I don't think it matters how much).

I don't want her to give me the house outright. First reason being that half of it will be my Dad's eventually. The main reason is that in the unlikely event that she would need to go into a home (I hope this will never need to happen), then we could get into trouble for deprivation of assets.

You are quite right. I was confusing with the rules for married couples/civil partners.

I also understand the deprivation of assets logic - but I'm impressed by someone on MSE who actually wants to treat this issue correctly! (Every other post on the subject is about how to scam money off the government by depriving the aged relative of their assets!).

John_Pierpoint

Some elderly people feel they have been scammed when after a life time of paying "national insurance", they wake up in hospital after an attack of "old age" to find the main concern is "is he/she self funding" [Translation "does this old bag of bones have a net worth of more than about 25K"].

I still have a so called NHS dentist. Once upon a time the two "receptionists" used to spend their time chasing up the manufacturers of dentures and other similar activities; now they seem to spend all their time working out how the treatment of some "can't pay won't pay" rotten mouth is going to be financed.

By the way the government has no money. Even in China they call it "the peoples money". Some of the government spending is raised by taxes, some of it is borrowed and some of it is simply printed as the deficit gets bigger. Perhaps you meant "how to scam money off their fellow citizens" rather than care for their relative themselves.

superpup

MarkyMarkD wrote: »

You are quite right. I was confusing with the rules for married couples/civil partners.

I also understand the deprivation of assets logic - but I'm impressed by someone on MSE who actually wants to treat this issue correctly! (Every other post on the subject is about how to scam money off the government by depriving the aged relative of their assets!).

Ah, but doesn't mean I'm totally happy about it

My Grandparents worked very hard and were extremely careful with their money. (Nan still is. I'm currently battling with her to get her hair done as she spotted how much it cost last time I took her and is now saying she's growing it!) But I understand the money has to come from somewhere. Frustrating but just the way it is so have to deal with it. Hoping it'll never come to that anyway.

While I can complain about the above, I have to say that social services etc have been amazing since Nan moved in with me. Bath hoist and stair lift are in, grab rails and step outside being organised. Guess you have to take the rough with the smooth

chrismac1

it is free to do this if you use this form:

http://www.hmrc.gov.uk/forms/form17.pdf

Under the Income and Taxes Act section 387 you are permitted to own the property - beneficial interest - in completely different proportions to the income split. This is further confirmed in one of HMRC's own website posts, see another of my recent posts for the details.

Personally I have no qualms about helping clients avoid care home fees, the main issue is to make sure any transfer of ownership is irrevocable - but I leave the details to a local guy who specialises in these sorts of arrangements.

BoGoF

chrismac1 wrote: »

it is free to do this if you use this form:

http://www.hmrc.gov.uk/forms/form17.pdf

Under the Income and Taxes Act section 387 you are permitted to own the property - beneficial interest - in completely different proportions to the income split. This is further confirmed in one of HMRC's own website posts, see another of my recent posts for the details.

Personally I have no qualms about helping clients avoid care home fees, the main issue is to make sure any transfer of ownership is irrevocable - but I leave the details to a local guy who specialises in these sorts of arrangements.

Dear oh dear Chrismac have a bdad day yesterday, have a look at the form 17 again - it is for married couples/civil partners. This thread is about grandparent/grandchild.

John_Pierpoint

Perhaps we are getting off the actual tax minimisation query as defined by the original poster, but the objective of this site is to minimise outgoings in all their forms.
Like the problem of gifting assets that could be hit by both CGT and then IHT and then a local authority charge. .

Yes I think we need a better explanation of "beneficial Interest" for Income Tax and CGT and IHT purposes.
As the taxation acts can be different, I've got this nasty feeling that there could be subtle differences, depending on the tax under consideration. (*)
Then we need to understand the local authority's rights to put a legal charge on the land at the Land Registry under under another law about deprivation of assets.
Are the local authority rights to recover acting against legal ownership as against beneficial ownership and the income yield of the asset or both?
Then we perhaps need to understand what proportion of the property is still legally owned by the elderly person and if this equal or unequally division of ownership, with a fit and healthy "younger" co owner, automatically blocks the local authority - or must this co-ownership be an "in common" trust relationship.
What I am getting at: Is a simple revocation of a joint "tenancy" into an arrangement of "tenants in common" in writing all that is needed? OR does does the action these days need to be registered at the Land Registry; thus requiring the correct form (ASxx), registration fees and probably legal fees, because the parties involved are "twitchy" about what they are doing ?

John.

(*)
Remember there is no logic to tax, there isn't even any logic between different types of taxes within HMRC; let alone logic uniting the tax system and the reclaiming of fees from the "wealthy" elderly. (I rather get the impression that the "self funders" are subsidising the "poor" local authority care home tenants - the problem being most acute when a self funder runs out of funds and has to switch sides).
Remember a tax is defined as a compulsory unrequited payment levied in a way that is not proportional to individual costs incurred.
This is the most self evident example of such taxes:
http://www2.oecd.org/ecoinst/queries/TaxInfo.htm

superpup

John_Pierpoint wrote: »

Perhaps we are getting off the actual tax minimisation query as defined by the original poster, but the objective of this site is to minimise outgoings in all their forms.
Like the problem of gifting assets that could be hit by both CGT and then IHT and then a local authority charge. .

Yes I think we need a better explanation of "beneficial Interest" for Income Tax and CGT and IHT purposes.
As the taxation acts can be different, I've got this nasty feeling that there could be subtle differences, depending on the tax under consideration. (*)
Then we need to understand the local authority's rights to put a legal charge on the land at the Land Registry under under another law about deprivation of assets.
Are the local authority rights to recover acting against legal ownership as against beneficial ownership and the income yield of the asset or both?
Then we perhaps need to understand what proportion of the property is still legally owned by the elderly person and if this equal or unequally division of ownership, with a fit and healthy "younger" co owner, automatically blocks the local authority - or must this co-ownership be an "in common" trust relationship.
What I am getting at: Is a simple revocation of a joint "tenancy" into an arrangement of "tenants in common" in writing all that is needed? OR does does the action these days need to be registered at the Land Registry; thus requiring the correct form (ASxx), registration fees and probably legal fees, because the parties involved are "twitchy" about what they are doing ?

John.

(*)
Remember there is no logic to tax, there isn't even any logic between different types of taxes within HMRC; let alone logic uniting the tax system and the reclaiming of fees from the "wealthy" elderly. (I rather get the impression that the "self funders" are subsidising the "poor" local authority care home tenants - the problem being most acute when a self funder runs out of funds and has to switch sides).
Remember a tax is defined as a compulsory unrequited payment levied in a way that is not proportional to individual costs incurred.
This is the most self evident example of such taxes:
http://www2.oecd.org/ecoinst/queries/TaxInfo.htm

Thanks John but you've made my head hurt a bit

I'm going to read this properly when my brain is in the mood. Probably will just hurt my head again...

IHT isn't going to be relevant. At present, house is worth less than £100k. Also hoping that care home fees will also be irrelevant as I would rather pay for nurses to help me here if I needed it, than put her in a home. Hopefully the rental income would cover that, if not, I would sell her house to pay for it. While I am fit and well, it's not an issue but don't want the aggro of falling foul of the law to complicate matters!

I think I need a trip to a solicitor.