Tax Implications/Legality of this

[ANonMouse]

Scenario

Person A is unable due to complex personal circumstances purchase an asset themselves
Person A has £300k in cash
Person B is a family member


Person A Gifts Person B the £300k
Person B buys an income generating asset outright and pays the applicable tax on that income
Person B gifts the net income figure to person A on a monthly basis


I assume this is perfectly legal?
Does the gift of the taxed income from person B get classed as income for person A and therefore get taxed again?


Thanks

Non Mouse

[Eric Mc]

The person who owns the asset pays the tax on any rental income generated by the asset.

If they chose to gift the after tax income to someone else that is their business.

Pretty stupid though.

[pacoryan]

ANonMouse said:

Scenario

Person A is unable due to complex personal circumstances purchase an asset themselves
Person A has £300k in cash
Person B is a family member


Person A Gifts Person B the £300k
Person B buys an income generating asset outright and pays the applicable tax on that income
Person B gifts the net income figure to person A on a monthly basis


I assume this is perfectly legal?
Does the gift of the taxed income from person B get classed as income for person A and therefore get taxed again?


Thanks

Non Mouse

Persons A and B must ask themselves "Why?" and then have some good answers ready in case HMRC or a court asks them the same question. The arrangement sounds legal but also designed to avoid an obligation or liability. An hour with a tax solicitor would be money well spent.

IHT is a major issue as well, for both parties.

In your example the monthly gifted amount would not be liable to income tax twice, if it was an actual documented loan.

[Eric Mc]

And, if the person who officially receives the rent is a higher rate taxpayer - they may have to pay over more tax on this income than the original person would have.

[98elise]

Person B could loan the money to Person A, charging interest of whatever the asset makes each month. Person A makes no money as interest is deductible (they will still need to declare it through self assessment though).

This will let Person B deal with the tax liability.

I am not in anyway shape of form qualified to give financial advice, so talk to someone who knows tax law!

[Simpo Two]

ANonMouse said:

Person A is unable due to complex personal circumstances purchase an asset themselves

Is Power of Attorney an option?

[Eric Mc]

Person B may not want a tax liability - especially if they are a higher rate taxpayer.

[oOTomOo]

Person A may already be a higher rate tax payer. Person B may be a stay at home housewife, sorry, have no existing tax liability.

[PurpleMoonlight]

My guess is A is a higher rate tax payer and B currently pays no or little tax.

So it's essentially tax evasion and I bet HMRC would deem it as such, especially if there is some formal agreement in place. They have no pro-active way of finding out though mind.

For that A also risks £300,000 as B could decide to keep it and the rent.

Tangled web and all that ....

[Grumfutock]

Not sure about any other area but this will really bite you both in the bum with tax should person B drop dead. You can only gift 3k per year I think, for the purposes of inheritance tax.

[Eric Mc]

PurpleMoonlight said:

My guess is A is a higher rate tax payer and B currently pays no or little tax.

So it's essentially tax evasion and I bet HMRC would deem it as such, especially if there is some formal agreement in place. They have no pro-active way of finding out though mind.

For that A also risks £300,000 as B could decide to keep it and the rent.

Tangled web and all that ....

Yes - and HMRC does have what is referred to as "Anti-Settlements" legislation which tries to prevent people concocting transfers of capital from one person to another to try and mitigate one or both of the individuals' tax bills.