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Letting house if half has already been protected.

Hiatou

New member
May 3, 2022
4
0
Hello everyone, my mother in law is about to go into residential care and we are considering what to do with her house. My father in law sadly died with alzheimers 6 years ago, and his half of the property was left directly to his 2 children. We completed the relevant transfer form at the time. My question is: If we rent the house so that half of the rent can contribute to care costs, does half of the rental income go direct to the children who pay income tax on it at the time? Can the rental income be dealt with on an annual rather than monthly basis? Or can it be back calculated at the eventual death of parent? Would I need to consult a Solicitor or Financial Adviser to discuss the options? One child is not based in the UK, so there are complicating tax factors.
 

nitram

Registered User
Apr 6, 2011
25,087
0
North Manchester
Mother in law will be in residential care with no need of house.
Does she have capacity?
If not did she appoint a Lasting Power of Attorney whilst she had capacity?

Have you considered selling the house?
 

jugglingmum

Registered User
Jan 5, 2014
6,305
0
Chester
If there is an overseas owner then it is likely that non resident landlord returns will be required (I suggest a google of HMRC to read up) - rental agents are often familiar with these and will complete them.

All 3 recipients of the rent will need to declare rental income and prepare annual self assessment tax returns as all 3 (MIL and 2 children) will be taxed on the income.

Rental income also comes into the MTD requirements if it exceeds £10k annually, I'm not sure how this works for one property with 3 owners.

I suggest speaking to a high street accountant would be the best way to go.

There are other issues with renting a property but I've just commented on my limited knowledge of the tax issues you've raised.
 

Hiatou

New member
May 3, 2022
4
0
Mother in law will be in residential care with no need of house.
Does she have capacity?
If not did she appoint a Lasting Power of Attorney whilst she had capacity?

Have you considered selling the house?
 

Hiatou

New member
May 3, 2022
4
0
Thank you. Yes, she completed a PoA in favour of both children before her diagnosis and incapacity. We are considering all options at the moment, so trying to get full facts to be able to make an informed decision.
 

Hiatou

New member
May 3, 2022
4
0
If there is an overseas owner then it is likely that non resident landlord returns will be required (I suggest a google of HMRC to read up) - rental agents are often familiar with these and will complete them.

All 3 recipients of the rent will need to declare rental income and prepare annual self assessment tax returns as all 3 (MIL and 2 children) will be taxed on the income.

Rental income also comes into the MTD requirements if it exceeds £10k annually, I'm not sure how this works for one property with 3 owners.

I suggest speaking to a high street accountant would be the best way to go.

There are other issues with renting a property but I've just commented on my limited knowledge of the tax issues you've raised.
The non-UK child is already an experienced landlord, so familiar with reporting to HMRC etc. It is just how to deal with the rental income when it needs to be split 3 ways. I assume the tenant will simply make 1 monthly payment into Mother's account. And that child with PoA will then make the transfers to the 2 co-owners. It is just some costs such as insurance/elec checks etc are only annual, so can the transfers be made at the end of the tax year? Or if Mother died during the year, would the money in her bank account be considered hers, even though some of it was the accrued rent for the children?
 

jaymor

Volunteer Moderator
Jul 14, 2006
14,971
0
England
Would the split technically be a two way split with MIL getting half of the rent and the two children a quarter each. A three way split but not a third each?
 

nitram

Registered User
Apr 6, 2011
25,087
0
North Manchester
Would the split technically be a two way split with MIL getting half of the rent and the two children a quarter each. A three way split but not a third each?
Yes they jointly inherited FIL's half share.
Mil still owns half as tenant in common, I think children will also both be tenants in common.
 

MartinWL

Registered User
Jun 12, 2020
2,029
0
65
London
Who actually collects the rent and how often it is distributed is something to be negotiated between the three. With any rental property there are bound to be maintenance bills that may come in irregular chunks so the three need to sit down and agree how costs as well as revenue will be managed, and be clear about who will take charge if a burst pipe is reported at 2am.
 

Lynmax

Registered User
Nov 1, 2016
988
0
We’ve just hit a slight snag with my mums house which we rented out when she moved into a care home. Mum dies very recently, in fact we are still waiting for the death certificate to inform banks etc. The tenancy agreement was renewed two weeks ago for a year so we cannot serve notice to the tenant until next April in order to sell the house.

So, the rent will still be paid and some expenses incurred but mums bank accounts will be frozen. We’ve been advised that once probate is done, we can transfer the house into our names and open a new business type account. In the meantime, the rent will continue to be paid to the property company but they will hold onto the funds until probate is done. At the moment, there are huge delays getting probate so it’s likely to be six month or more before things can be finalised.

I also know the tax paid on the rental will be complicated but luckily my brother and sister are sorting all that out as they are executors of mums will, I can’t get my head around such matters! Luckily a solicitor friend of mine will do all the probate stuff and advise us what to do, we will pay him the going rate of course but he will go the extra mile to make things easy for us.

I did not want to rent mums house out, I wanted to sell it but was outvoted so it’s really hard for me not to say “ I told you not to rent,” when all these extra processes need to be carried out!
 

MartinWL

Registered User
Jun 12, 2020
2,029
0
65
London
It has taken six months for me to get probate so I do sympathise.I wonder if you might have the rent paid to an account in the name of one of the executors as a short-term measure? The executors will have to pay bills for the house and respond to any maintenance issues that cannot wait for months so will need funds available.

In my case I have incurred around £1000 of expenses although there isn't a house to maintain and have had to wait for probate before I can reclaim it. In your case the amounts might be considerably larger.

Of course it goes without saying that the executor should keep the estate funds separate and keep full records.
 

Melles Belles

Registered User
Jul 4, 2017
1,007
0
South east
@Lynmax could you set up an executor account with the bank and have the rent paid in to this account and any expenses paid out from it. The account would be in the name of ‘executors of Lynmax’ mother’.
As executors my siblings and I opened one a couple of days after we received the death certificate.
 

MartinWL

Registered User
Jun 12, 2020
2,029
0
65
London
@Lynmax could you set up an executor account with the bank and have the rent paid in to this account and any expenses paid out from it. The account would be in the name of ‘executors of Lynmax’ mother’.
As executors my siblings and I opened one a couple of days after we received the death certificate.
I did exactly the same thing but the bank froze the account until I have probate. I can only add money to it, not use it to pay anything. Annoyingly they also cancelled online access even to view it. Perhaps different banks have different policies.
 

Melles Belles

Registered User
Jul 4, 2017
1,007
0
South east
This was Nationwide. I have checked and one withdrawal was made just before probate was granted. This was 2019 so it possible policy may have changed.
 

Lynmax

Registered User
Nov 1, 2016
988
0
@Lynmax could you set up an executor account with the bank and have the rent paid in to this account and any expenses paid out from it. The account would be in the name of ‘executors of Lynmax’ mother’.
As executors my siblings and I opened one a couple of days after we received the death certificate.
Our solicitor told us that the bank might not open an executors account until probate is granted. Also. Like Martins bank, we wont be able to withdraw from such an account so no use for paying a standing order for the gardening service or for any repairs etc during the rest of the tenancy.

We could have the rent paid to one of the executors but they would then be taxed on the income! Our best hope is that the property company will keep the rent until after probate when it can be registered to our names and an account opened. They offer a repair service and would deduct the costs but are more expensive than us using our own tradesmen or buying goods ourselves.
 

Shedrech

Volunteer Moderator
Dec 15, 2012
12,133
0
Yorkshire
Hello @Hiatou
A warm welcome to DTP

Members can certainly offer suggestions and opinions but no-one here is an expert so maybe consult an accountant or even ask a rental agent as they may have come across similar situations
 

Bod

Registered User
Aug 30, 2013
1,542
0
Rental properties, use an agent, have the rent paid to the agent, agent then pays for repairs, before passing remaining rent to owners, in this case two quarters to the children, one half to mothers account.
Yes the agent takes a fee, but does all the paperwork, of which there is plenty. (and takes the tenant moans)

Bod
 

MartinWL

Registered User
Jun 12, 2020
2,029
0
65
London
Our solicitor told us that the bank might not open an executors account until probate is granted. Also. Like Martins bank, we wont be able to withdraw from such an account so no use for paying a standing order for the gardening service or for any repairs etc during the rest of the tenancy.

We could have the rent paid to one of the executors but they would then be taxed on the income! Our best hope is that the property company will keep the rent until after probate when it can be registered to our names and an account opened. They offer a repair service and would deduct the costs but are more expensive than us using our own tradesmen or buying goods ourselves.
If paid into a separate account in the executor's own name but as trustee then I don't think tax would be payable by the executor as it would not be his money. Tax would be payable on the estate including that income. However this is complicated and I agree with @Shedrech that you should take advice from an accountant who specialises in this area.
 

dora

Registered User
Aug 1, 2007
151
0
England
When rented out the house will need all the usual maintenance and coping with unexpected emergencies as well as complying with legislation on rental properties. I agree with Bod that it is worth employing a reputable management agent to do this, and the agent will also split the rent and pay each person their own share.
As regards tax, you only pay tax on what is left after expenses eg a new boiler. You calculate this after the end of the tax year and declare it on your tax return. The amount of tax due is calculated and you have until January 31st of the following year to pay. Thus tax for the year 2021 - 2022 does not have to be paid until January 2023.
If the rent brings your MIL's income over the personal allowance, she will have to pay tax on it.
 

Lynmax

Registered User
Nov 1, 2016
988
0
I did exactly the same thing but the bank froze the account until I have probate. I can only add money to it, not use it to pay anything. Annoyingly they also cancelled online access even to view it. Perhaps different banks have different policies.
Mums bank have told us exactly the same today, we can still have the rental income paid into it but we can no longer make any withdrawals and lose online access. However, the two executors ( not me thank goodness) have to take the death certificate and other papers in person and the earliest appointment being offered on the online booking system was 23rd June! I think my sister is investigating a different route to get an earlier appointment but in the meantime she has downloaded all the bank statements into a file so she has the info ready for the tax accountant who will be helping with the tax returns. We had to go paperless so mum did not realise we were using her money to pay for carers!