Sharing rental income with family members

axg20202

Hi all,
My brother and I jointly own a rental property and we'd like to share a third of the rental income with our Mum even though she has no ownership of the property. I understand that tax free gifts are possible, but the share of rent would exceed the allowance for this. Can someone recommend an alternative method to legally make these payments to our Mum?

Thanks.

Comms69

axg20202 wrote: »

Hi all,
My brother and I jointly own a rental property and we'd like to share a third of the rental income with our Mum even though she has no ownership of the property. I understand that tax free gifts are possible, but the share of rent would exceed the allowance for this. Can someone recommend an alternative method to legally make these payments to our Mum?

Thanks.

There is no allowance on gifts.

You can give her £1bn tax free

theartfullodger

Aye, no problem. Simply grant 33% of the ownership to mum, job done!


You'd not go tax fiddling, that surely ain't the decent, fair, British thing to do?

xylophone

There is no tax payable by the recipient on an outright gift of cash.

Are you concerned about IHT?

The rent is part of your and your brother's income.

You want to make regular gifts out of income to your mother.

Or perhaps this is a payment to help with an elderly relative's living costs?


https://www.gov.uk/inheritance-tax/gifts

Each tax year, you can also give away:


normal gifts out of your income, for example Christmas or birthday presents - you must be able to maintain your standard of living after making the gift

payments to help with another person’s living costs, such as an elderly relative or a child under 18

However, you do not escape income tax by giving money to your mother - it was your income and is taxed as yours before you gave it away.

G_M

axg20202 wrote: »

Hi all,
My brother and I jointly own a rental property and we'd like to share a third of the rental income with our Mum even though she has no ownership of the property. I understand that tax free gifts are possible, but the share of rent would exceed the allowance for this. Can someone recommend an alternative method to legally make these payments to our Mum?

Thanks.

Income Tax:
You and your brother receive the rent, so must declare it in full to HMRC and each pay approproate IT.


Inheritance Tax
You and your brother can gift any regular amount you wish to your mother, provided you do so from your regular income and without reducing your standard of living. The 7 year rule on IHT would then not apply.

Gifts from your surplus income

If you have enough income to maintain your usual standard of living, you can make gifts from your surplus income. For example, regularly paying into your child’s savings account, or paying a life insurance premium for your spouse or civil partner.
To make use of this exemption, it’s very important that you keep very good records of these gifts.
Otherwise, Inheritance Tax might be due on these gifts when you die.
The rules for this exemption are complex - for example, these gifts must be regular, so you need to be committed to keeping up with making these gifts.

https://www.moneyadviceservice.org.uk/en/articles/gifts-and-exemptions-from-inheritance-tax

00ec25

axg20202 wrote: »

Hi all,
My brother and I jointly own a rental property and we'd like to share a third of the rental income with our Mum even though she has no ownership of the property. I understand that tax free gifts are possible, but the share of rent would exceed the allowance for this. Can someone recommend an alternative method to legally make these payments to our Mum?

Thanks.

there are 2 ways to read your question


1. can you and your brother avoid paying tax yourselves on a share of the rent given to mother (when she is not an owner)?
Answer: categoric NO

Your mother has no entitlement to a share of the rent as she does not own the proeprty and therefore cannot take a share of YOUR profits in her name and so reduce the amount upon which you and your brother will be taxed.

or

2. can you and your brother give money to your mother after you have paid tax on it yourselves?
Answer : yes you can give her as much as you want totally tax free for both yourselves and your mother.

The main concern will be that such gifts have implications for the person giving the money in respect of their inheritancne tax position if they die. ("the 7 year rule"). I assume you have seen reference to a £3,000 "gift limit" - that relates only to inheritanc e tax and in the context of your quiestion is best forgotten as it is apparently confusing you.


PS once you clarify which of the above 2 questions you are actually asking we can advise futher because there is a way to share income without being a legal owner...

G_M

00ec25 wrote: »

or

2. can you and your brother give money to your mother after you have paid tax on it yourselves?
Answer : yes you can give her as much as you want totally tax free for both yourselves and your mother.

The main concern will be that such gifts have implications for the person [STRIKE]giving[/STRIKE]receiving the money in respect of their inheritancne tax position if they die. ("the 7 year rule"). I assume you have seen reference to a £3,000 "gift limit" - that relates only to inheritanc e tax and in the context of your quiestion is best forgotten as it is apparently confusing you.

...

minor correction!

00ec25

G_M wrote: »

minor correction!

hmm, did you miss the words: inheritance tax?

00ec25 wrote: »

The main concern will be that such gifts have implications for the person giving the money in respect of their inheritance tax position if they die. ("the 7 year rule"). I assume you have seen reference to a £3,000 "gift limit" - that relates only to inheritance tax and in the context of your question is best forgotten as it is apparently confusing you.

last time I looked the implications of PETS and the 3k are upon the deceased's estate, so in that sense fall upon the (ghostly) person who gave the money

the circumstances where the recipient is subject to IHT upon the money received are so rare as to be unworthy of general mention

However, in another context, unrelated to IHT, you are correct that the person receiving a cash gift is not taxed on it

G_M

Surely the (inheritance) tax is levied on the Estate of the deceased? In other words the (albeit deceased) person who received the money.

The person giving the money would not be taxed (other than via income tax).

True, it may be that giver of the gift is also the Beneficiary of the Estate (we have no information one way or another on this) in which case they would bear the cost via a reduced inheritance, but they would not be directly taxed.

Or am I going bananas.......?


:think:

00ec25

G_M wrote: »

Or am I going bananas.......? :think:

so tempted to reply ... cannot resist

G_M wrote: »

Surely the (inheritance) tax is levied on the Estate of the deceased? In other words the (albeit deceased) person who received the money.

marvellous, the ghost received it from their living self. Not just marvellous, blooming miraculous

G_M

I think someone slipped something into my last cake mix when I popped out of the kitchen.......