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Sam
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Category: Tax
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my wife's father has bought a house and our 3 children are

Customer Question

my wife's father has bought a house and our 3 children are now on the deeds as joint owners with the grandparents. the house will be rented out. my father in law wants to set up a joint account with my wife that will receive the rent income and it will be disbursed equally to our 3 children. how will this be treated on my wifes tax return. she has no title to the property or will draw any income from the rent
regards
james
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.

Hi

Thanks for your question

If th children are on the deeds, then they are the ones who will be treated as having a share of the rental income, unless than are under the age or majoriity in which case they CANNOT be put on the deeds anyway.

As for the rental income - I do not understand why your wife is to be put on the bank account -that will receive the rental income, as she has no involvement in this matter, it would be better that the granfather takes the rental income and then distributes it directly to the grandchaildren - or better still they be named on the accopunt too.

To keep your wife involved on this bann account, she will be treated as being in receipt of income which she does not legally have a right too AND cannot make any drawings (even for the children or it will be treated as half her income/third of he rincome)

So if its essental that she remins on the account, then no drawaingas and the the only tax liability will be, liable to tax on a share of any interest that is paid on the capital in the account - and its the interest (her share) to be declared on her self assessment tax return

Thanks

Sam

Thanks

Sam

Customer: replied 1 year ago.

Hi Sam

There are 3 grandchildren and my father in law can't open a current account with all three names on it.

So it was suggested that my wifes name was on the account together with my father in law to manage the rental income on behalf of our children.

It would also help to smooth any problems that may arise as he gets older & less able to manage.

So to confirm what you have advised; if my wife was on the joint account she would not be able to distribute the rental income to our children without it being treated as her income or settle any house repairs etc?

And should we decide to go ahead with this account the only income she would have to declare on her tax return would be on half of any interest accrued on the joint account provided she did not make any drawings on this account?

Many tks

james

Expert:  Sam replied 1 year ago.

Hi James

Thanks for your response

Yes you are spot on - putting your wife on this account (although as an afterthought if she signed a declaration with her father than she has NIL interest in this account and that for the time he can, her father distributes the income to the children, and by the time he cannot manage this, then power of attorney could be sought) but she most certainly cannot settle bills or have any involvement with the income or outgoings of this account without then attracting the need to consider HMRC.

The other way around this is then your wife acts as manging agent and then she receives the rents and pays the bills etc and then distrbutes the net rents to her father and the children (and maybe takes a small wage for her trouble!)

Is that a feasible consideration?

Thanks

Sam

Customer: replied 1 year ago.

Thanks for your response this is really helpful

Regarding your suggestion of my wife being the agent my father inlaw is planning to use a commercial letting agent and the money go to this new account we refer to then distribute it to our children.

Sounds like there is imited benefit of my wife being on this account only that she could step in time of need but without power of attorney she would still have the tax implications.

Many thanks once again

Regards,

James

Expert:  Sam replied 1 year ago.
Hi James
Thanks for your response
Then just ask the managing agent to distribute the funds accordingly! Th would serve to provide a complete and simple solution.
Let me know if you have any follow up questions, but it would be appreciated if you could take the time to rate the level of service I have provided (or click accept)
Thanks
Sam

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