Expenses (Mileage) Apportment on rental income on a 100/0 split

katy123

Hi This is currently our set up (slightly simplified). I own 30% of the property and my dad own 70% as tenants in common as reflected on the TR1 form. We have agreed through a written agreement that all rental income is apportioned to him (he is a non taxpayer) and I am a basic rate or higher rate (dependent on bonus). All rental income is paid into my bank account as my dad does not know how to use online banking and as he says...too old to learn!.....He also wants a very hands off approach. I therefore pay all expenses from my bank account and he will complete a self assessment for tax year 14/15. Allocating the expenses wholly to him as he received 100% rent (this is actually shown as it is 100% paid out to him) is easy for most expenses except the mileage claim (40p). I visit the flat myself for general repairs/inspection so I accrual the expenses but receive no income. Can my dad a. claim the mileage expense (offset against his income) b. would have to pay me 40p back in order to claim it. Obviously the 40p is not the actual expense amount, just a deemed cost/allowance by HMRC.

Another question is that some expenses are sometimes pay from cash (my cash) and do I ask dad to pay that back into another bank account to avoid confusion?

Despite the rental income (before allowable expense) dad will still be a non taxpayer but I understand that he still needs to complete a Self assessment as it is over £2,500 after allowable expenses.

marksoton

You really need an accountant!

Christ knows how you create an audit trail based on all that. Beware the HMRC!

Kynthia

You have made this very messy. By having the rent and expenses going in and out of your account but saying all the income is 100% your father's, and he doesn't pay tax, makes it look like you are evading tax. Then you are the one incurring the mileage expense but you want to be reimbursed by your father who then claims the expense as a deduction on his tax return, which might be easier to justify if you weren't also an owner of the property.

I think you need advice from an accountant experienced in this area. It's perfectly possible for joint owners who are unmarried to agree a 0/100% split in the income. However when the person supposed to be getting 0% has all the income going into their account, is the one visiting the property and incurring the mileage costs being claimed, and is the only one who would pay tax if they were receiving the income, it does make it look very suspicious to the HMRC.

katy123

Kynthia wrote: »

You have made this very messy. By having the rent and expenses going in and out of your account but saying all the income is 100% your father's, and he doesn't pay tax, makes it look like you are evading tax. Then you are the one incurring the mileage expense but you want to be reimbursed by your father who then claims the expense as a deduction on his tax return, which might be easier to justify if you weren't also an owner of the property.

I think you need advice from an accountant experienced in this area. It's perfectly possible for joint owners who are unmarried to agree a 0/100% split in the income. However when the person supposed to be getting 0% has all the income going into their account, is the one visiting the property and incurring the mileage costs being claimed, and is the only one who would pay tax if they were receiving the income, it does make it look very suspicious to the HMRC.

Hi, thanks for your reply. I guess the easiest solution is to run a joint bank account, have all expenses paid out of that account (but the mileage question still remains) and distribute the profit say at the end of the tax year (all paid to my father's bank account). Although I must admit this would be an exercise purely to satisfy HMRC as I know one who is excel savvy can run a set of accounts and distribute the money at the end of the year. One could go as far as paying the money from a completely different bank account or in cash but that would be silly as HMRC would most probably disagree. I personally think running one set of account in excel and distributing the funds from my account is suffice, but HMRC can be very funny. I guess this works much metter if the split was say 10/90 as you have some meat in the game...however, 100/0 is special which could get HMRC scratching their heads....Interesting to hear your views......

theartfullodger

Is this "agreement" done under a 17 with HMRC??

You really need to modify it so it is (say) 99/1 otherwise I think it will be illegal. See
http://www.taxation.co.uk/taxation/Articles/2011/05/25/24802/spousal-split

Surely paying one's fair share of tax is a patriotic duty??

katy123

theartfullodger wrote: »

Is this "agreement" done under a 17 with HMRC??

You really need to modify it so it is (say) 99/1 otherwise I think it will be illegal. See
http://www.taxation.co.uk/taxation/Articles/2011/05/25/24802/spousal-split

Surely paying one's fair share of tax is a patriotic duty??

Thank you for your reply....the article is for a married couple. Our arrangement is between my dad, my spouse and myself. Hence we can allocate all rental income to him. This is purely a tax planning exercise, just the same as a bed and isa, spousal transfer of capital etc.....nothing wrong considering my dad is on very little income to sustain his retirement.

booksurr

theartfullodger wrote: »

Is this "agreement" done under a 17 with HMRC??

You really need to modify it so it is (say) 99/1 otherwise I think it will be illegal. See
http://www.taxation.co.uk/taxation/Articles/2011/05/25/24802/spousal-split

Surely paying one's fair share of tax is a patriotic duty??

OP is not married to his father so a Form 17 is irrelevant

0/100 income split is perfectly legal for income tax purposes and will also stand the test when it comes to CGT assuming that son has evidence of why he is entitled to 30% legal ownership even if he has had zero beneficial interest in the income during the life of that ownership. Patently that means son needs to have paid 30% of the original purchase cost of the property since he is not contributing towards the BTL mortgage so has no ongoing evidence of a beneficial stake in the place

re expenses: it is a pity that son is mixing business into his own personal bank account but the mileage and cash expenses incurred are legitimate costs of father's rental business and as such can be offset against the income before the net profit is paid over to father.

Whilst it would obviously be more transparent if there was a separate bank account but since the rental income ends up in son's bank account there is no reason why father has to physically pay cash to his son to reimburse son for expenses incurred by son when in reality all son is doing is paying less money over to father because son is already sitting on the money and is simply paying less of it over. This will of course need to be supported by respective receipts and mileage claim document

inability of father to operate online banking is no reason for son to use his personal bank account. It would be much better if a separate "lettings" bank account was in use instead

katy123

booksurr wrote: »

OP is not married to his father so a Form 17 is irrelevant

0/100 income split is perfectly legal for income tax purposes and will also stand the test when it comes to CGT assuming that son has evidence of why he is entitled to 30% legal ownership even if he has had zero beneficial interest in the income during the life of that ownership. Patently that means son needs to have paid 30% of the original purchase cost of the property since he is not contributing towards the BTL mortgage so has no ongoing evidence of a beneficial stake in the place

re expenses: it is a pity that son is mixing business into his own personal bank account but the mileage and cash expenses incurred are legitimate costs of father's rental business and as such can be offset against the income before the net profit is paid over to father.

Whilst it would obviously be more transparent if there was a separate bank account but since the rental income ends up in son's bank account there is no reason why father has to physically pay cash to his son to reimburse son for expenses incurred by son when in reality all son is doing is paying less money over to father because son is already sitting on the money and is simply paying less of it over. This will of course need to be supported by respective receipts and mileage claim document

inability of father to operate online banking is no reason for son to use his personal bank account. It would be much better if a separate "lettings" bank account was in use instead

When you say separate letting account, i'm assuming you mean joint bank account?

katy123

booksurr wrote: »

yes, a joint account whose only transactions relate to the rental business and nothing else would be the best solution given father's inability to run an account in his own name. It would also confirm that you took no income from the business.

In respect of your expenses (eg: cash purchases & mileage) "you" would then have to physically pay money out of that account to reimburse yourself for the costs you incurred on behalf of your father. Thus there would be real transparency of father's deductions from his net profit for tax purposes as the movement of the money would support his claim to having incurred a cost against his income

I should have been more precise and not have simplified things but the property is held 15% me 15% my spouse and 70% my dad. I've just read more on form 17 requirement and not sure if we can allocate 100% rent to dad as a married relationship exist but then again also non married relationships exist (between me and my dad and my spouse and my dad).

booksurr

katy123 wrote: »

I should have been more precise and not have simplified things but the property is held 15% me 15% my spouse and 70% my dad. I've just read more on form 17 requirement and not sure if we can allocate 100% rent to dad as a married relationship exist but then again also non married relationships exist (between me and my dad and my spouse and my dad).

see answer on your other thread
https://forums.moneysavingexpert.com/discussion/5323954

on both properties you own with your father it is him who takes 100% of the income so him and him alone who has the tax liability

jjgold

stop trying to dodge tax and pay what you owe