Rental Income

[Kimbombim]

My partners grandfather passed away on monday and has left his house which he owned outright to his son and daughter (my partners mother) .

They have offered to rent us the property at a reduced price so that the house is occupied and kept in the family so to speak.

The rental income would be £400 per calender month.

They intend to keep the money in a joint account between them and use it to cover the upkeep of the property for instance.

In 10 years say when they sell the property the pot of cash built up over the years will be split between the son, daughter, my parter and his cousin.

Basically what i need to know is - will they have to declare the income and pay tax on it or is there a legal way for them to avoid it?

Thanks

Kim

 

[bdw]

All income must be declared for tax purposes so yes, they would have to declare this.

 

[DeanCo]

They would have to declare the rent on their tax return, but if they pay tax or not depends on their personal circumstances i.e. if they have other income and are over the personal allowance

 

[eccountants]

All income must be declared for tax purposes so yes, they would have to declare this.

Yes completely right.

If it's being rented at a lower-than-market value then there's likely to be less of a profit, but your partners parents will need to calculate the rental income and declare it on a Self Assessment tax return each year.

Most accountants will be able to prepare 'rental accounts' for a fairly minimal price, and it does reduce the risk of making any mistakes. Not using an accountant can be a false economy if you're not sure of what you're doing.

Given that there's no mortgage on the property (if there were you could claim the interest as an allowable expense), there will almost certainly be a profit, even on a £400 monthly rental charge, but there will be a few expenses that can mitigate that, such as buildings insurance, any rates / utilities that are paid for by your partner's parents and, if it's furnished (i.e. where furniture or white-goods are provided by the landlord) then they can claim an expense of 10% of the rent (so £40 per month) for 'wear and tear'.

 

[eccountants]

if they pay tax or not depends on their personal circumstances

Again, this is a good example of why it's worth speaking to an accountant. If, say, your partner's father has enough income to pay tax, but your partner's mother doesn't, it might be worth registering the ownership of the property as 'tenants in common' with your partner's mother owning the lion's share, so that most of the rental income can be declared in her name, thereby minimising any taxes.