Posted by Simon Misiewicz on 15th July 2013
Do you wish to know what a Joint Venture partnership is all about?
Usually, there won’t be a partnership and the taxpayer’s share from the jointly owned property, will be included as part of their personal rental business profits.
Less commonly, the joint letting may amount to a partnership. If this is the case the share of the profit, or loss must be kept separate from any other letting income.
A partnership loss cannot be deducted from a personal rental profit and vice versa.The property income rules will not alter a taxpayer’s status. A partner will not cease to be a partner just because of the current rules. Equally, if a taxpayer was not a partner before, they will not become a partner just because of the current rules. See below for more about the cases where a partnership exists.
Taxpayers who have “jointly owned” property, should know who is keeping the records and have access to them. They are personally responsible for including their share of the income on their own tax return, even if they agree that someone else will keep the records.
If person A lends money to person B then a loan agreement has been formed rather than a Joint Venture. Person A treats the interest as income for self assessment purposes just as they would with bank interest received.
Person B would treat the interest that they have paid as finance costs.
Person A provides a loan of £10,000 at 1% per month (12% pa). This is treated as a “debt” in Person A’s Financial Statements and “loan” for Person B’s financial statements. The interest . The interest at the end of the year equates to £1,200. Person A therefore has a taxable income of £1,200 and person B has tax allowable cost of £1,200.
Jointly owned property – no partnership: Where there is no partnership, the share of any profit or loss arising from jointly owned property will normally be the same as the share owned in the property being let. But joint owners can agree a different division of profits and losses and so occasionally the share of the profits or losses will be different from the share in the property. The share for tax purposes must be the same as the share actually agreed.However, where the joint owners are husband and wife, or civil partners, profits and losses are treated as arising to them in equal shares unless:
Both entitlement to the income and the property are in unequal shares, and both spouses, or civil partners, ask their respective tax offices for their share of profits and losses to match the share each holds in the property.
If a taxpayer’s only income from land and property in the UK comes from a jointly owned property, that share alone will form the rental business. If a taxpayer has other income from land and property in the UK, whether in their name alone or owned jointly with other people, their share from the jointly owned property will form a part of their rental business along with the other income and expenses on any other properties which they own alone. Once again, however, shares held in a different capacity (partner, trustee, executor) must be kept separate.
Jointly owned property – partnership
A taxpayer may jointly own properties which are let out as part of a partnership business. This might occur where: – they are in a trading or professional partnership which also lets some of its land or buildings (but see BIM41015 about the inclusion of rents from the temporary letting of surplus business accommodation in the trading or professional profit), – more rarely, they are in a partnership which runs an investment business which does not amount to a trade and which includes, or consists of, the letting of property.A partnership rental business of either type is treated as a separate business from any other rental business carried on by the individual partners on their own account. Each partner’s share of the profits or losses arising from the partnership rental business, can’t be added to or subtracted from any individual rental business profits or losses. If taxpayers are in more than one partnership, each is dealt with as a separate rental business and the profits of one can’t be set against the losses of another.
Simon owns a holiday cottage and a garage both of which he rents out on a commercial basis. He is also a partner in a haulage business, which owns buildings let out to other traders.In this case Simon runs two different rental businesses:the first is his own business consisting of the cottage and the garage,the second is the partnership rental business consisting of the trading premises let out.Simon’s share of the profits or losses from the partnership rental business must be kept separate from his other rental business. He will need to make a separate return of the profits or losses for each business on his tax return form.
When does a partnership exist?
Whether or not a taxpayer is a member of a partnership depends on the facts. A partnership is unlikely to exist where the taxpayer is one of a group of joint owners who merely let a property that they jointly own. On the other hand, there could be a partnership where the taxpayer is one of a group of joint owners who: – let the jointly owned property, and provide significant additional services in return for payment. Much depends on the amount of business activity involved. The existence of a partnership depends on a degree of organisation similar to that required in an ordinary commercial business.
If you would like to know how to set up a Joint Venture Partnership then why not quote “Profitable JV” to Simon for this month only and receive a free 30 minute consultation.
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