Tax implications of renting out house not owned by you

the-mango

Say person A owns the house and lets B live in it rent free. B then rents it out. Are there any implications for person A?

House has no mortgage.
Thanks

BitterAndTwisted

No, none. But there would be thick-ear implications as well as tax ones for person B.

the-mango

Sorry if I'm just being stupid but what are thick ear implications?

Kynthia

Ha ha, I think B&T is assuming the subletting was being done without the permission of the owner. Yes person B would be the LL of the new tenants and would need to declare the income to the HMRC.

the-mango

Oh no it would all be done with A's knowledge and permission!
Would this be sneaky/cause tax problems if it was done to reduce tax for party A as B is a non/lower tax rate payer?
B would not be paying the money to A at all.

Kynthia

If it's being done with the purpose of avoiding tax then it's starting to look dodgy. If the HMRC class it as tax evasion then it's illegal.

What is the relationship between persons A and B? Did B actually live in the property and where did A live? You say that B doesn't pay A any rent but would A benefit from the rent B receives in some way?

chewmylegoff

the-mango wrote: »

Oh no it would all be done with A's knowledge and permission!
Would this be sneaky/cause tax problems if it was done to reduce tax for party A as B is a non/lower tax rate payer?
B would not be paying the money to A at all.

well, if B would not be paying the money to A at all, ever, then it may be ok. not sure though, it may be considered to be a contrived arrangement to wrongfully evade tax by HMRC.

it seems a bit odd though that A would be willing to do this if A is not going to see any of the money at all. if A's motivation is to avoid paying tax, presumably at 40%, then why would A be willing to give away 100% of their income to B to achieve this?

Ulfar

This would depend on how party B is related to party A, HMRC would see it as tax evasion due to disposal of income through a third party and the fact it would be a contrived tenancy.

So potentially Yes there could be tax and criminal implications for both of you.

G_M

So I am a 40% tax payer. I have a property I live in. I get a job abroad for 6 months and tell my partner (s)he can live in my property rent free.

I return from abroad and we get married. We move into a larger property together and rather than rent out my property (and pay tax at 40%) my spouse finds a tenant and lets the property.

We agree that she will keep the rent, while I pay all the costs of the new property where we live.

Neat.

Ulfar

G_M wrote: »

So I am a 40% tax payer. I have a property I live in. I get a job abroad for 6 months and tell my partner (s)he can live in my property rent free.

I return from abroad and we get married. We move into a larger property together and rather than rent out my property (and pay tax at 40%) my spouse finds a tenant and lets the property.

We agree that she will keep the rent, while I pay all the costs of the new property where we live.

Neat.

If you own the property solely this will be looked at as tax evasion as disposal of income through a spouse, if it is joint then they may apportion income 50/50.

For partner to have whole income you would have to sign house over to her, this however would also be looked at closely especially if the property is then rented out.

grey_gym_sock

well, hmrc might take the view that if it's A's property, it's A's rent, which A happens to be giving to B. in which case, it's A's taxable income, not B's.

a possible counter-argument is that B is A's letting agent, and so B is collecting rent on A's behalf, deducing his charge as an agent, and paying the remainder to A. it just happens that B's fee as a letting agent is 100%.

the main problem with that argument is that 100% is an implausibly high fee for an agent. 10% would be more normal, perhaps you could get away with 25%, but 100%?