General partnership - advisable in this situation?

[neilsolaris]

Hi,

I'm wondering if setting up a general partnership in this situation is advisable (or even mandatory)?

Two family members (let's call them brother A & B) have a lodger. Only brother A lives in the property, but they will split the profit 50/50.

Is there any need to set up a partnership? Can they just declare their own profit shares on their own self-assessment forms?

Many thanks!

 

[MyAccountantOnline]

Hi,

I'm wondering if setting up a general partnership in this situation is advisable (or even mandatory)?

Two family members (let's call them brother A & B) have a lodger. Only brother A lives in the property, but they will split the profit 50/50.

Is there any need to set up a partnership? Can they just declare their own profit shares on their own self-assessment forms?

Many thanks!

Have you considered Rent a Room relief?

HS223 Rent a Room Scheme (2023)

www.gov.uk

 

[neilsolaris]

Have you considered Rent a Room relief?

HS223 Rent a Room Scheme (2023)

www.gov.uk

I have, thanks for pointing that out. Probably the first year will be more beneficial with the normal method, as the pre expenses will lead to a loss, which can be carried forward.

 

[neilsolaris]

I think I made my question too specific to rental income! What I should have asked is this. If two people run a business together, on their tax return, can they both declare their respective income and expenses for this business as a sole trader? So each one puts down 50% of the income, and 50% of the expenses?

Or in this situation, is it mandatory to put it through as a partnership?

I think you're going to tell me that a partnership is advisable though, and I would agree.

 

[DWS]

So which is it?
2 family members renting a room or 2 people running a business?
2,completely different scenarios meaning any number of answers

 

[neilsolaris]

Two family members (landlords) are renting out a room. I understand that rental income isn't subject to Class 4 NIC, doesn't count towards relevant pension contributions, and follows different rules for loss relief.

I suppose renting out a room is more akin to an investment, whereas a typical business operates with a profit-seeking motive. I found advice online now that says that they don't need to form a partnership, if there isn't a profit-seeking motive. I have a more complex question I was actually leading up to, which I'll put separately.

 

[neilsolaris]

So, let's suppose that brother A continues to live at the property. However, brother B subsequently moves abroad, and because non-UK tax resident. Will brother B need to submit a Non-resident landlord form NRL1 to HMRC?

 

[neilsolaris]

Two family members (landlords) are renting out a room. I understand that rental income isn't subject to Class 4 NIC, doesn't count towards relevant pension contributions, and follows different rules for loss relief.

I suppose renting out a room is more akin to an investment, whereas a typical business operates with a profit-seeking motive. I found advice online now that says that they don't need to form a partnership, if there isn't a profit-seeking motive. I have a more complex question I was actually leading up to, which I'll put separately.

The reason for my uncertainty is the wording on the HMRC website - "You can use this form to apply to get your UK rental income paid without deduction of UK tax, if you: are an individual landlord of UK property". This doesn't exactly apply in this particular scenario.

https://www.montroseproperties.co.uk/non-res-landlord.pdf

Are there different rules for joint landlords then?

 

[TheSkyisGray]

Individual means a natural person and not a company.

 

[neilsolaris]

Individual means a natural person and not a company.

I see, thanks, I haven't thought of that.