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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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In 2002 my wife and myself bought a 50% share in a house, our

Customer Question

in 2002 my wife and myself bought a 50% share in a house, our son having the remaining 50%. The house was 'let' and the agreement was that we would take the rent in our lifetime and our son would own the house on our death. In 2014 because of our age we signed our 50% over to our son so that he is 100% owner, but we continued to take the rent and pay all expenses. The income and expenses have always been shown on our 'tax return' we would prefer this to continue but in view of the change in owner what is our legal position with inland revenue
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Where a property is owned jointly by a married couple, the rent is split on a 50:50 basis by default unless it is actually owned in proportions other than 50:50 and HMRC are advised by the couple through the completion and submission of a form 17.

Where a property is owned by more than individual and they are not married, the rental income can be split as the owners wish regardless of the proportions in which it is owned which is what you did with your son.

From the point in time that your son became the sole owner, he should have been disclosing the rental income in his own tax returns even if he mandates it to you.

When you signed over your 50% share to your son, that was a disposal for Capital Gains Tax purposes at the open market value of that share so each of you and your wife will almost certainly have a capital gain to disclose given that you bought the property in 2002. The first £11,000 of gains an individual made in 2014/15 was exempt from CGT. The equivalent figure was £10,900 for 2013/14.

The gift of the 50% share to your son is also a potentially exempt transfer for Inheritance Tax purposes which will fall out of your own and your wife's estates so long as you each live for at least seven years after making it. After three years, the potential IHT charge tapers away as you can see here. The nil-rate IHT band is also first used against gifts made in the seven years before death.

I hope this clarifies your position but let me know if you have any further questions.