Tax on property

CEON44

Hi all, need some help on tax on a property rental. Its a bit complicated as the property is owned by 6 people. My wifes father, although still alive, gave the property ( legally signed over) to his 6 children. His only proviso was that he didnt want the property sold as he may at some time in the future require to live in it again. So it has been let out for about the last 5 years and each year I have sent off 6 letters with the rental details to HMRC. This included the total income received minus expenses. So for example if the rental income was 7k with expenses at 1k. Then net income was 6k, divided by the 6 owners each one received 1k per year. So each letter declared 1k as their own personal income. This worked ok until last year as all 6 worked. Now only 2 of the 6 are in employment. And out of those 2 working only one of them earns more than the tax threshold. So, I have 2 questions. First of all it seems as if all 6 have to pay tax on their 1k return, regardless of whether they work ( earn money) or not or are under/over the threshold. why is this? Second question is, is there an easier way of paying the tax. Maybe through a company?? So rather than 6 people all putting in individual returns could a company be the answer to make one simple payment? Even if a company was set up would people then still be liable for tax if they withdrew their 1k? Any help or guidance on this would be much appreciated. By the way I live in Northern Ireland

Brighty

What makes you think they have to pay tak on the £1k if under the threshold?

Brighty

booksurr

why are you sending a single letter covering all 6 people. Tax is an individual issue and each person should be declaring their own income. Therefore whether they do or do not have to pay tax because their total income (pay and rental profit) is, or is not, above the personal allowance will be self evident to HMRC. Where applicable HMRC can then adjust the tax code of those working so as to collect any tax due via deduction from PAYE

For those not working and not liable to tax, then nothing more needs to be done, they have fulfilled the requirement to declare to HMRC any income not subject to tax at source and that is the end of it for that person

until the date father in law gave the house to his children was it his main home that he lived in all the time he had owned it? If not then FIL was liable for Capital Gains Tax.
The fact that his children have not lived in as their main home means that if FIL reoccupies the property and ownership is transferred back to FIL then each of the 6 children will be liable for CGT under the gifts to connected persons unless FIL pays them the full market value to buy it back

xylophone

His only proviso was that he didnt want the property sold as he may at some time in the future require to live in it again.

Gift with reservation? Might have IHT implications.

CEON44

Hi and thank you for the replies. First of all Brighty. My sister in law has earned under the threshold but has been asked for £115.80. I dont understand why. Next, Booksurr. I didnt send off 1 letter for 6 people, I sent off 6 letters with each persons NI number etc etc. Thats why I asked the question about possibly setting up a company, to make it more simple, ie one payment.

Also to Booksurr and Xylophone. Interested on your thoughts on Capital Gains and Inheritance tax. Let me explain a bit further about the ownership of the house and then maybe let me know your advice. My father in law owned a property, his residence, and bought a new property for similar money. At the exchange of contracts on the new property he listed his 6 children as owners with himself having the right to dwell there, if he desired, until his death. So effectively he wasnt the owner on the day the contracts were exchanged, his children were and deeds are in their 6 names. He lived in the house for about a year before moving in with a lady friend and still is with her after about 5 years. As the children are legally the owners they have let out the property, fully aware that their father may at some time require to live there again. No money has changed hands in this transfer. The rental income has been declared each year but even unemployed siblings have been asked to pay tax. I really dont understand why, thats why I thought the rules were different for property letting

Your_Hero

I hope the 6 letters you sent off had more paragraphs that your OP.


Probably better to seek professional advice in this instance as it is not a simple question.

xylophone

At the exchange of contracts on the new property he listed his 6 children as owners with himself having the right to dwell there, if he desired, until his death. So effectively he wasnt the owner on the day the contracts were exchanged, his children were and deeds are in their 6 names.

He paid for the property and thus made a gift to his children? But it was not without strings? So a gift with reservation? So not effective as an IHT avoidance measure?

http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071.htm

You'd need to check the point with a solicitor to be sure? Or perhaps he already has?