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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My 3 children inherited a property from my wife 3 years ago

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My 3 children inherited a property from my wife 3 years ago and are registered as landlords with the local Council. since my youngest son was not earning it was agreed he would receive and retain the rental in full. He is now earning so filed a tax return recently for 2014-15 declaring only 1/3 of the income.
My other two children do not routinely file since they have low income and are on tax credits . but my daughter has now been asked to declare income from the flat by HMRC ( maybe they picked up her interest from the local authority register of landlords? I'm not clear on this ).
My concern now is that the 2 children on tax credits will be pursued for tax on their notional share of the income over the whole period since my wife died - and they will be effectively taxed at 100% or more by having past and future payments reduced £for £ .
and may even lose all benefits as a result.
Can you advise on how to resolve this dilemma? My son who has been receiving the full rental is willing to amend his return for 2014-2015 to include the full amount , and to continue to pay tax on the full amount for 2015-16 and beyond , thus allowing my other two children to avoid financial problems resulting ffom this situation .Do you think this is an option , or is there some other way to minimise the adverse impact?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. HMRC has access to property databases which hold the names of owners such as the Land Registry. That will be how your daugher was traced. Where a property is jointly owned between individuals who are not married to one another, eg siblings, regardless of the fact that they own the property equally, they can split the rental income any way they like for tax purposes. Take a look here for confirmation of that fact. It would be helpful to have a written agrement setting out the rental income split. Certainly, any rental income would have an influence on benefit entitlement. They may need to explain to the tax credit people that the income has been and is allocated to one sibling only. I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
I have to go out but will be back in about 30 minutes to answer any follow up questions that you may have.
Customer: replied 1 year ago.
Thank you .I've now learned that my youngest son has in fact for some time been sending my other two children a share of the income- all of which is paid to him by the tenants - through his bank , since he is now better placed financially. Does this prevent the solution of him declaring the whole amount or can those payments be regarded as a gift or whatever from him to them? Do HMRC care about what happens to the income so long as all of it is declared for tax purposes by one of them?
Expert:  TonyTax replied 1 year ago.
Your son could say that the payments to his siblings were gifts but I doubt that the tax credit people would accept that. HMRC want things done properly. I would not advise the siblings to claim that the payments they received were anything other than a share of the rent if asked by the tax credit people. It may be that they have no tax to pay if they are on low incomes and even if they do it should only be from when your son started sharing the rental income out. Any such income should be disclosed for tax credit purposes. I always advise people to be straight with the tax and tax credit authorities. No other course of action is worth the worry.
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