keeping tax minumum on rental income

shykins

hi everyone.. i read this site all the time and am impressed on how helpful and knowledgable u all are so thought u could help us decide on the following

my partner is buying a property withhis divorce settlemtn... he earns and pays tax whilst i have minimum income and can easily take the rental income and not pay tax..

my question is does he have to make me a joint owner and would it have to be in set percentage so i can take the maximum income (he has no problem doing this) or can he jus nominate me as receiving the income and paying any tax on it??

can we say we have to pay a loan to my parents for the balance purhase monies (which is true) and claim that as expenses despite it not being formalised

thanks so much in advance for any help and i hope i can help someone in the future

Innys

I think the Revenue will always take a dim view informal arrangements such as this which are obviously designed to minimise a tax liability.

If the house is in his name, they would see him as being the landlord, and therefore receiving the rental income. Even if you buy it in joint names with the loan from your parents, I doubt the Revenue would ever see it as being solely your income. The split of the rental income is up to you but beware that the Revenue will challenge the figures if they appear inconsistent with your relative contributions.

With regard to the loan from your parents, will you be paying interest to them? If not, and you are repaying the capital only to them, none of the repayments can be deducted from the rental income. If they are charging you interest, you may be able to deduct this only from the rental income. However, this may have to be some type of semi-formal arrangement - best to check with the Revenue. Be careful, though, as the interest you pay to your parents may end up being treated as taxable income for them!

What you could try is him buying the house and giving it to you. That means you become the owner on the title deeds. Provided this happens soon after its purchase, the price won't have risen much and so the capital gains tax will be pretty much zero. Then, if he survives 7 years, there is no inheritance tax to pay either. Once the house is in your name, the rental income is all yours, though who pays the mortgage may influence the Revenue's decision on who is the "true" owner of the house.

However, if he does this, he has no future right to the house - is he likely to be happy with that?

Sorry to be the bearer of bad news but this could end up biting you big time in the future if the Revenue get upset with how you arrange this.

Cook_County

He could gift you the divorce settlement. The money is the yours and if he survives for 7 years there is no IHT payable. You could then buy the property entirely in your name and pay tax on 100% of the rental income and be liable for all of the expenses.

shykins

many thanks for your informative help on the subject.. i thought this would be the case but its nice to have it clarified for me

Sujamjen

I've always wondered, how the Inland Revenue knows if you don't tell them. Do the mortgage company inform them about Buy-to-Let mortgages?

dcrooz

The IR work in mysterious ways!

Be aware that you don't have to get a buy-to-let mortgage to become a landlord and (** as far as I know **) you don't even have to inform your mortgage lender, they will just try to get more money out of you if you do.

shykins

thats a good point.. we wont be having a mortgage and if the house is in his name how would they know if he was there or renting it out

not that i am suggesting we would do this to avoid tax cos we are on about putting the property in my name now but its interesting as to how WOULD the IR know

Cook_County

sujamjen - the situation you describe would be tax evasion, which would a criminal offence. if you have income on which you owe tax it is your responsibility to file a tax return. that is how HMRC know!