Reduced rent for partner giving a beneficial interest in property?

AllPaws4

My friend owns a property. She has allowed her partner, who is still married, to live there for the past ten years. Although there is no formal tenancy agreement, he pays less than market rent to her and she accepts she is a landlord. 

She is now wondering whether this arrangement would allow her partner’s wife to claim he has some sort of beneficial interest in the property & bring that value into consideration in a divorce settlement. 

tacpot12

If this arrangement has been arrived at to try to engineer a situation in which the partner has no assets, effectively hiding his wealth from his wife, then I would hope that she would have a claim over it! Courts and solicitors know all the tricks and he can expect to get treated more harshly if he has tried to hide his wealth.

However, if the arrangement is innocent; your friend and her partner are living as a couple in a house that she owns, and which he gives her some money that they refer to as 'rent' then a) she is not a landlord (she is not in business), b) she does not need to declare this money on her tax return (legally it is a gift from him to her), however his estate might have to pay IHT on any amounts he gives her if he dies within 7years of the gift c) his wife will not have any beneficial interest in the property because he does not have any beneficial interest in the property. 

I am in exactly the second situation above. I pay my partner "rent" but it is in fact a gift that I give her in return for her being kind and loving to me. (I also pay half of all the running costs of the house; council tax, utility bills, insurance, etc.)  
 
If your friend's arrangement is something different; e.g. he is paying "rent" and has agreed with the friend that this is buying a portion of the property, then he, and therefore his wife will have a beneficial interest in the property. If this is the case, he would expect to have a Deed of Trust in place to determine how much of the property he owns at any point in time. 

theartfullodger

Probably.  Does she declare this rent to HMRC?  Does she invoke the rent-a-room tax scheme?

silvercar

She has allowed her partner, who is still married, to live there for the past ten years.

Very odd turn of phrase. If they are living together, why not just say that.  Rather than a below market rent, I would call it "shared living costs" or "board".

I pay my partner "rent" but it is in fact a gift that I give her in return for her being kind and loving to me.

So many ways to rephrase that! Does the amount depend on how "kind and loving" she is???

Caz3121

AllPaws4 said:

My friend owns a property. She has allowed her partner, who is still married, to live there for the past ten years. Although there is no formal tenancy agreement, he pays less than market rent to her and she accepts she is a landlord. 

is this a separate property to where your friend lives or are they living together in her property?

AllPaws4

My friend has her own house and he lives in her buy to let property. He gave his wife virtually all the family house when he left so that the adult children could remain there. 

She does declare the rent and pays the service charge on the btl. 

The partner & his wife are approaching retirement & friend has suddenly wondered whether the reduced rent (approximately two thirds market rent) could allow any suggestion that the partner has an interest that could be weighed in the balance if/ when a divorce went ahead. 

letthemeatcake

He can't have given his wife the house because he's not yet divorced. The financial side cannot be started until a divorce is at least at the nisi stage and then a split of all assets including pension, savings, debts, assets such as cars must be agreed by both parties and a Consent Order put in place.  He would still be entitled to a share of the fmh regardless of any previous agreement, even if his wife has paid all of the mortgage.

AllPaws4

Thanks, I don’t think they have factored that into the equation so in the worst situation friend’s partner has some bargaining power.