Income from partial share of rental property

stevep99

Hi Money Savers,

This is a question about how the share of income from a renal property is determined for tax purposes.

I am currently buying a property with my wife and mother-in-law (no jokes please ), which we intend to rent out. The proceeds from the rental income will be shared out in the same proportion as the amount invested.

The complication arises because the mother-in-law lives abroad, and so we are intending to simplify the legalities here by purchasing as my wife and myself only.

If we can show (via bank statements etc) that the mother-in-law does in practise own a specifc share, would we be able to take this into account when declaring our income from the house? Or will the taxman be cross about it? :undecided

RAS

If a landlord lives outside the UK, they need a certificate from the HMRC to show that tax has been paid, or the tenant has to retain 25% of the rent and pay the tax man themselves.

You need a lot more advice on the tax situation and the legalities before you go any further.

Mattygroves2

Unless her name is on the deeds you will find it hard to prove to HMRC that she owns part of the property (and is due part of the rent) because she doesn't. Its the deeds that prove who owns the place and rent is due to those who own unless you draw up some sort of sub letting agreement.

If she gives you the cash then she's given you a loan (providing that it is documented and she expects something back) and you could have it written into the loan agreement that she is due interest on that loan. The interest you pay her would be an allowable deduction against your rental profit but you would have to pay her and not just calculate it. It would then be taxable income in her hands.

To protect herself she should secure her loan against the property as a charge. I think this should work if you're buying cash but not sure how a mortgage company would react to having a second charge.

stevep99

Thanks for the comments.
I did suggest doing it as a loan but she wasn't that keen.
Seems like either we need to put on her the deeds, or else we simply pay the UK tax due on the whole amount and then transfer her remaining share tax-paid as a "gift".