Splitting rental income

[Kyo]

Hi I have been searching the internet regard splitting rent and there doesn't seem to be a clear answers for my questions as most refer to married couples. So any help would be grateful. 

I Am looking at purchasing a property with a parent to rent out however I Am a 40% tax payer my mum is not. If we split the rent 50-50 would we have to pay 40% on the whole rent or just my half? (after allowable expenses). 

Would I also have to pay national insurance on the rental income? 

I also inherited a property and co own that with my dad (it's yet to be rented out as we are carrying out improvements) I will draw no income from this one so my dad will get 100% of the rent, again would the rent be subject to 40% and would I still have to complete a tax return as I Am not getting any income from it so technically there is nothing to declare? 

 

Many thanks in advance 

[Richlist]

The HMRC default position on jointly owned property (2 people) is that the rental income is split 50:50. So each persons income from the rental property is added to any other income and taxed accordingly.

This default position will not only apply to the property you are thinking of purchasing with one of your parents. It will also have to apply to the inherited property provided it is owned jointly in equal shares.

Now, there can be a difference between the legal and the beneficial ownership. You can split the beneficial ownership into any split between 50:50 and 1:99. You will need to see a solicitor to get the documents drawn up and submitted to HMRC.

Hope that helps.

You don't pay NI on rental income.

[Richlist]

Sorry correction required.....the 50:50 split of rental income will apply to the inherited property irrespective of the split of legal ownership.Beneficial split can only be varied by the correct documents being submitted to HMRC.

[Kyo]

Thank you soo much for your reply been going round in circles on the internet looking for information.

sorry for being thick but just to clarify the tax is calculated after the rent is split. So as I Am already in the higher tax bracket I should pay 40% on my half but my mum should pay 20% on her half as she will still be below the higher tax band once her half of the rent has been added onto her other earnings for the year. 

Thank you for clarifying about NI. Would this alter if the landlord/lady is retired?

From your reply it is my understanding that (I own the inherited property 50-50 (added this bit in as I have just seen your correction while typing)) my dad can take 99% of the rent but we need to get a document from our legal adviser to confirm this is the case which can be sent to HMRC. 

I think I Am getting there 

Thank you 

[Richlist]

On the property owned jointly with your mother the income (and expenditure) will be split 50:50.....you pay 40%, your mother will pay 20%

On the property with your father....if you want to vary the split to anything other than 50:50 you will need legal docs drawn. Cost shouldn't be more than £200-£300. But remember, if it's currently rented and you don't have the necessary docs to vary the split you will need to split the income and expenditure 50:50. I don't believe you can apply a variance in the split retrospectively........but your solicitor or accountant will know for sure

[Kyo]

Thank you so much for your help