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bigduckontax
bigduckontax, Accountant
Category: Tax
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Hello. Last year my mother gifted her property to my sister

Customer Question

Hello. Last year my mother gifted her property to my sister and myself. I reside at the property, (it is the only property I own), and my sister resides at another property she also owns. My mother still resides at the gifted property with me, and due to the gift being classed as a 'gift with reservation of benefit', pays a market rent each month to myself. My sister receives no rental income from the property.
So with regard to now declaring this rental income to HMRC through self-assessment and paying the tax due. Can I do this under the 'rent-a-room' scheme and receive the full amount of £4,250 tax relief? I meet the requirements of renting a furnished room in my only and main home, and all the rental income has been paid to me. My concern is that the property is 50% owned by my sister, who also owns another property. is this allowable under the 'rent-a-room' scheme?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
You and your sister are joint tenants of the house which is your, but not your sister's, sole or main domestic residence. You are deemed to own it 50/50 unless evidence to the contrary exists. Thus 50% of the rental received forms part of your sister's income for Income Tax (IT) purposes and should be declared on her self assessment return.
You could have the let allowable under the Rent a Room scheme, your sister is ineligible. HMRC rules say:
'The rent-a-room scheme applies to ordinary lettings of living accommodation in the taxpayer’s own home.'
Your sister may own 50%, but it is not 'her own home.'
However, beware of the tiny caveat tucked away in the HMRC rules on the subject viz:
'The £4,250 limit may be halved if someone else gets rents from letting the same home.'
This restriction does not apply to married couples or civil partners. Unfortunately your sister does not come into either of those categories. So you would have to fall back on your sister's entitlement to half the rent and see if it can be reduced to zero. If she can be shown to have no involvement in the lettings process and no managerial input HMRC might allow the full relief, but from recent comments by my colleagues I would tend not to rely upon that surmise overmuch.
I am so sorry to have to deposit a shower of rain on your parade.
Customer: replied 2 years ago.
Dear *****, thank you so much for your speedy reply. I'm Hugh.
If I could provide you with a bit more information.
My sister is resident in Ireland, and wishes to have no contact with HMRC.
On the self assessment form could I just put an 'x' in the property let jointly box, and just claim for half the amount of £2,125 for rent-a-room?
My sister won't be claiming for the remaining half.
Do you think this is the best course of action?
Many thanks, Hugh
Expert:  bigduckontax replied 2 years ago.

Well Hugh, she needs not have contact with HMRC, she would almost certainly be deemed to be non resident and although she is required to declare any income which has not been taxed everybody appreciates that a mere couple of thousand is well below the personal allowance so a declaration is merely an exercise in financial and administrative futility!

Well, you could proceed as you suggest, but why throw away half the tax free rental under Rent a Room relief? It is always possible that, if you put a case to them, HMRC will allow full relief. They can only say no so write to your tax office explaining the situation in which you find yourself. Not all HMRC staff are ogres.

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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Customer: replied 2 years ago.
Hi Keith, would it be possible to just enquire about one more thing in regard to this matter.

If I declare and pay all the tax due on the rental, but only claim for half the tax relief on the rent-a-room scheme, and not involve my sister, do you foresee any issues that could arise in the future?

The value of the property in question has increased to silly money over the years, and we are doing this for inheritance tax planning reasons. When my mother does eventually pass away, we don't want to be left with any complications about how the tax was paid on this 'gift with reservation of benefit.

Many thanks Hugh
Expert:  bigduckontax replied 2 years ago.
Well, no, but as I said just check. There is no link between Rent a Room Relief which is available to a property owner and absolves him from some otherwise taxable income and Inheritance Tax. It is an Income Tax relief measure.

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