Hi
Thinking of owning a rental property with my mother. Me 10%, my mother 90%. However, we wish all of the rent to be paid to myself. My mother has a income of approx £20,000 per annum.
I understand that when we come to sell the property, any gain will be subject to capital gains tax. Based on the each owners % share.
Therefore, if the profit on selling was £30,000. I would receive £3,000 and my mother the remaining £27,000.
Therefore, when my mother calculates her tax obligation for capital gains, she will take her income (lets assume still £20,000) and add on her £27,000 profit from the house sale, less the present £3,000 exemption, if still available.
As my mother will have received no rent from the properties, her income means she is still a basic rate taxpayer and accordingly will only pay capital gains at the basic tax payer rate of 18% on the house profit.
However, if my mother had received the rental income in the proportion share of ownership (ie 90%) she would be a higher rate tax payer and hence pay the higher rate of capital gains tax which is 24%.
Could I therefore please ask for confirmation:
On selling the property, will my mother's CAPITAL GAIN TAX Calculation be based on her actual income received that tax year, which does not include any rental income
OR
On selling the property, will my mother's CAPITAL GAIN TAX Calculation be based on a scenario that , had she received the rent as
per her 90% actual holding in the property, this would have made her a higher rate tax payer, and hence she will need to pay the
higher rate of Capital Gains Tax of 24% on her share of the sale proceeds.
So basically, I am asking, does HMRC take into account the possible rental income that my mother could have received, had she so wished, (even though it will always be NIL) when HMRC are working out whether Capital Gains should be paid by my mother as a basic or higher rate tax payers.
