Income from Jointly owned property PIM1030 Bare Trust

We own a rental property that has been in the family for a few generations, the property is currently owned in un-equal shares by my Mum, myself and my son in the form of a 'bare trust', my son is under 18 and his share of 5% was gifted to him by his Grandmother. All the profit currently goes to my Mum but she would like a 50% share of the profit to be paid into my son's 'bare trust' to help fund his school fees. Can his Bare Trust receive 50% of the profit if his share of ownership is only 5%, would the beneficiary (my son) then be liable for tax paid on his share of the income?

Hi Jason,
As per the following link: Trusts and taxes Types of trust, any income held within the Bare Trust, your son would have the right to all of the capital and income of the Trust.
In terms of the rental income, in some cases it will be made clear that the legal owner is not the beneficial owner. The legal and beneficial ownership may be separated by a valid Declaration of Trust. Guidance may be found on Gov.uk and the conditions required.
Thank you.

Hi HMRC Admin 20, Thank you very much for coming back to me. Just to clarify, a Declaration of Trust can be written up having my sons Bare Trust as the beneficial owner of 50% of the profit on the property rental income and my mum (my sons Grandmother) as beneficial owner of the other 50%. Each party would then pay income tax if any is applicable on their share of the income. This would be the case even if I (the Dad) have a share of the legal ownership, I would have no tax obligation in respect of the rental income as I do not receive any.

Hi, I'm not HMRC Admin but a few points to note. If you transfer your interest to your minor children then it will likely be a settlement, the net effect of which is that it remains taxable on you. If your son truly has the beneficial interest then it is entirely up to him how the money is spent and there are few children who would choose to use it on school fees. By giving your son a beneficial interest, he will have lost benefits he could have had as a first time buyer when he leaves the nest. If there is a mortgage on the property that will throw an additional spanner into the works too. I think the best advice I can give you is to engage a professional to help keep you right.

Thanks BellaBoo, Having now read up on Settlements you are correct, this would be classed as a settlement so would not work to the benefit of anyone, it is probably time to speak to a financial advisor. Thanks Again..

 Hi,
 

Thank you for your question, firstly, I would direct you to guidance https:www.gov.uk/hmrc-internal-manuals/property-income-manual/pim1020 which states- Normally it is the person who carries on the rental business who is charged to tax. But the law says the IT charge falls on the ‘person receiving or entitled to the profits’, ITTOIA05/S271. And also, https:/ww.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem9310 which states- For rent, interest and income from intellectual property the legislation says that the person liable for income tax is the person receiving or entitled to the income . Thank you .

Thank you HMRC Admin 17, so in this instance, as the income is rent it is the person or 'trust' receiving the income that is liable for tax. This would indicate that this would not be a settlement and the rent could indeed be paid into a 'trust' where a declaration of trust is written up indicating the 'trust' is a beneficial owner and is entitled to a percentage of the rental profits.

Hi Jason,
Thank you for your question. Yes the rent could be paid into a 'trust' where the declaration of trust indicates the trust is the beneficial owner and is entitled to a percentage of the profits.
Thank you.