Hi, hopefully a quick query from some who have a knowledge of property rental income. My son purchased investment property after the crash, he couldn't get a mortgage at the time in his own name so I signed on the mortgage and deeds as a name only so he could get the house sorted. We took out an offset mortgage as I have a current account with the same bank the mortgage is with, I don't get any interest payments on my account balance, it goes towards reducing the mortgage interest rate.
He started renting it out last year and has made a pre-tax profit of just over £3000, not a massive amount. The thing is I am not taking any of the profit, but because my son lives abroad I have been taking care of the finances and all the rental is paid into my current account (the offset account) with the expenses for the house paid out of that as well, he will be getting the profit from it all (I will be sending him a cheque soon for the profit).
I am in the higher tax bracket, and my son in the lower one. Do I have to declare half the profit on my self assessment or can he put all of the profit through his self-assessment return? In hindsight it would have been cleaner to not involve my personal accounts with the deal but I thought it would be a nice gesture and would give him a bit of a break.
If it could potentially cause problems with HMRC in the future I will just pay the tax bill for now and be done with it, but I would need to sort something out for next year if that is the case, I pay enough tax as it is and don't want to pay any more on money I won't be earning.
This is a difficult one, firstly does your son own half the mortgage with you or is it in your name only?
Just because you say you are not making any profit because you are paying your son the profit doesn't mean on paper you are not yourself making profit.
I own a few rentals but my hubby can't just give me all the profit so he pays less tax, we both own the properties jointly and are therefore each responsible for paying equal amounts of tax on our SA's.
It does entirely depend on who 'owns' the property.
I'm sure Shaun will on here soon to enlighten the answer.
Hi, the mortgage is in both names, but like I said that was purely because my son couldn't raise the finance himself (it was just after the credit crunch and the banks weren't really lending).
I don't know your background, but given your first sentence I would also be asking if you have calculated the pre tax profit correctly ie what expenses are you putting through. The reason I say this is because i see a lot of confusion in this area, and people overclaim. As you are on the mortgage and deeds half of the property and therefore income is yours, regardless of the intention, plus it sounds from what you have described that you may be getting an additional benefit from use of the offset position. unless someone else on here has anything to add I would suggest you consider seeking out the services of an Accountant to get the advice you need for this year and the future.
-- Edited by Cheshire on Friday 23rd of January 2015 07:40:00 AM
-- Edited by Cheshire on Friday 23rd of January 2015 07:40:18 AM
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
There is definitely no overclaim, I used to be a bookkeeper some years ago so I understand the rules of the expense claims and the difference between holiday lets/furnished/part furnished etc and am aware that the rules have changed pertaining to renewals of assets and the claim for capital allowances. I'm not actually benefiting from the offset as I am losing interest on my savings, it my son who is benefiting from the lower interest rate on the mortgage.
"Jointly owned property - no partnership
Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed."
It doesn't matter whether the property itself is 50/50 ownership, it is the agreed share of income that is the deciding factor. I assume this will be subject to CGT adjustments as well, but that position suits me financially.
I'm not sure you can adjust your income split though Amanda, I think this has to be agreed from the outset.
