Receiver appointed on Rental property - tax treatment

hjr

General query,

If a receiver is appointed over an apartment block by a bank, I presume the owner of the properties still declares the rental income going forward? Its not that the receiver or the bank suddenly declare the rental income!

Typical Friday debate here!

Thanks

Geuze

A receiver takes control of the asset/business, and so receives the income.

That's the whole point of the bank appointing a receiver, so that they get control of the asset and its income.

hjr

So who returns the rental income profit/loss to revenue?

Geuze wrote: »

A receiver takes control of the asset/business, and so receives the income.

That's the whole point of the bank appointing a receiver, so that they get control of the asset and its income.

Marcusm

The answer will depend on a number of factors and going into it would likely breach the charter. In general terms, the diversion of cash flows of any sort (including garnishee orders etc) merely result in the funds being applied directly to defray the debt. It does not affect the beneficial entitlement to the asset (of any type) or income from which the cash flows arise. Until possession proceedings are effected or the asset is sold, I would expect the income to remain taxable in the hands of the owner. There is more nuance here and this cannot be regarded as advice or any sort of definitive statement.

Mr. Incognito

http://www.revenue.ie/en/practitioner/tax-briefing/2013/no-012013.html

For vat purposes the receiver is responsible for the returns

A receiver steps into the shoes of the owner and as such is accountable for all returns

How could the owner account for income he does not receive or have no control or notice of?

There may be capital allowance and clawback consequences.

Each situation requires detailed specific advice

hjr

Thanks for the feedback, it was only a general query caused by an office chat. We were reading about receivers being appointed to different hotels, rental blocks, etc and were wondering who was liable....

It certainly seems like a minefield alright!

Marcusm

Mr. Incognito wrote: »

http://www.revenue.ie/en/practitioner/tax-briefing/2013/no-012013.html

For vat purposes the receiver is responsible for the returns

A receiver steps into the shoes of the owner and as such is accountable for all returns

How could the owner account for income he does not receive or have no control or notice of?

There may be capital allowance and clawback consequences.

Each situation requires detailed specific advice

I'm afraid that's an overly simplistic analysis of the legal position, the receiver's powers to deal with the income and the asset are much more restricted than those which previously applied to the owner. In most circumstances, whilst the receiver is appointed by the mortgagee (lender, typically) he is the agent of the mortgagor (owner, typically borrower). Accordingly, the receiver must provide a full accounting of his dealings to the mortgagor/owner/borrower. To the extent that there is concern about Revenue seeking to interfere, the receiver would generally have the power to discharge tax liabilities out of the assets/cash flows. In many circumstances, where the receiver is an agent receiving income on behalf of others he may have an obligation (eg non resident landlords) to account for such tax in his capacity as agent.

Although the receiver becomes the mortgagor's agent, this is at the behest of the mortgagee and the mortgagor will generally be precluded from interfering with or discharging the receiver.

Mr. Incognito

Marcusm wrote: »

I'm afraid that's an overly simplistic analysis of the legal position, the receiver's powers to deal with the income and the asset are much more restricted than those which previously applied to the owner. In most circumstances, whilst the receiver is appointed by the mortgagee (lender, typically) he is the agent of the mortgagor (owner, typically borrower). Accordingly, the receiver must provide a full accounting of his dealings to the mortgagor/owner/borrower. To the extent that there is concern about Revenue seeking to interfere, the receiver would generally have the power to discharge tax liabilities out of the assets/cash flows. In many circumstances, where the receiver is an agent receiving income on behalf of others he may have an obligation (eg non resident landlords) to account for such tax in his capacity as agent.

Although the receiver becomes the mortgagor's agent, this is at the behest of the mortgagee and the mortgagor will generally be precluded from interfering with or discharging the receiver.

It is overly simplistic as I outlined that the circumstances would require specialised advices.

I am curious as to the receiver being the agent of a non resident landlord. Are you confusing rental income withholding obligations? Where would a person have a loan to a non residential bank? Most development loans, certainly those in NAMA were Anglo, Irish permanent and in some cases bank of Scotland now covered by certus. I fail to see how an agent is liable as a disclosed agent to not file returns on behalf of Irish resident banks.

You might expand. I am confused by your comments.

Are you saying that the beneficiary on whose behalf the receiver is appointed has the responsibility to file the returns and not he receiver? That is certainly not my experience in practice.

Short answer receiver must file returns except......

Marcusm

Mr. Incognito wrote: »

It is overly simplistic as I outlined that the circumstances would require specialised advices.

I am curious as to the receiver being the agent of a non resident landlord. Are you confusing rental income withholding obligations? Where would a person have a loan to a non residential bank? Most development loans, certainly those in NAMA were Anglo, Irish permanent and in some cases bank of Scotland now covered by certus. I fail to see how an agent is liable as a disclosed agent to not file returns on behalf of Irish resident banks.

You might expand. I am confused by your comments.

Are you saying that the beneficiary on whose behalf the receiver is appointed has the responsibility to file the returns and not he receiver? That is certainly not my experience in practice.

Short answer receiver must file returns except......

It wouldn't be a non resident bank but a non resident borrower. Take the situation of a buy to let mortgagee who headed offshore in seek if work. In such circumstances the landlord has become a non resident. The tenant in such circumstances should already be deducting tax at source. If the bank appoints a receiver as opposed to taking possession proceedings (BTL instance), the tenant would no longer be paying to an overseas landlord but to a resident agent.

In many circumstances outside the pure property arena, it can be best to try and avoid the receiver being assessable as the borrower may have attributes (losses, excess capital allowances etc) which could overall optimise the cash flows available to discharge the charged obligations. That isn't particularly easy to achieve; generally, the appointment if the receiver shouldn't, in my experience, give rise to a capital allowances problem as there has not been a disposal if a beneficial interest in any underlying assets (whether real property or plant) nor any relevant disposal event or proceeds.

Having a receiver assessable in respect of gross cash flows in circumstances where shelter is otherwise available (often the case in troubled enterprises) is something to plan around in everyone's interest.

hjr

So you could say that the receiver is acting as a type of "minder", a middleman between the property owner and the income that the property generates? To ensure that the money received is going to the lender and the taxman and not into the back pocket of the owner!
And that the receiver would be returning this income rather than the property owner?

I presume the receiver would not be able to go near other assets or income from the property owner....I'm thinking for example of a hotel owner who may have multiple properties, or perhaps a hotel owner who has a sole trader business seperate to the hotel....

Mr. Incognito

Marcusm wrote: »

It wouldn't be a non resident bank but a non resident borrower. Take the situation of a buy to let mortgagee who headed offshore in seek if work. In such circumstances the landlord has become a non resident. The tenant in such circumstances should already be deducting tax at source. If the bank appoints a receiver as opposed to taking possession proceedings (BTL instance), the tenant would no longer be paying to an overseas landlord but to a resident agent.

In many circumstances outside the pure property arena, it can be best to try and avoid the receiver being assessable as the borrower may have attributes (losses, excess capital allowances etc) which could overall optimise the cash flows available to discharge the charged obligations. That isn't particularly easy to achieve; generally, the appointment if the receiver shouldn't, in my experience, give rise to a capital allowances problem as there has not been a disposal if a beneficial interest in any underlying assets (whether real property or plant) nor any relevant disposal event or proceeds.

Having a receiver assessable in respect of gross cash flows in circumstances where shelter is otherwise available (often the case in troubled enterprises) is something to plan around in everyone's interest.

This has confused me further.
Most receivers are appointed over substantial assets, usually businesses. For individuals the bank can obtain a charge under the 2009 Land and conveyancing Act and sell the property. (Used to be well charging orders). They would not appoint a receiver unless it was an income generating asset such as a block of apartments and then you are talking about developers. I asked if you were getting confused with non resident landlord withholding obligations and receivers and it appears that is what you meant. This is not an area where a receiver will be appointed.

The second part or your question regarding optimising cash flows ? where a receiver has been appointed has me totally scratching my head.
The legal effect of receivers been appointed in effect crystallises a banks charge. The asset which was the property of the loanee is now that of the loaner. This may give rise to a disposal and all the tax consequences that flow from that. When the assets is sold, if it is eventually this may be a second disposal.

What shelter of income are you talking about? Receiver means he now takes control of the asset. Financial planning opportunities are gone at that stage. Your asset is seized, it's income no longer belongs to you and you may have poor or no communication with the receiver.

Marcusm

Mr. Incognito wrote: »

This has confused me further.
Most receivers are appointed over substantial assets, usually businesses. For individuals the bank can obtain a charge under the 2009 Land and conveyancing Act and sell the property. (Used to be well charging orders). They would not appoint a receiver unless it was an income generating asset such as a block of apartments and then you are talking about developers. I asked if you were getting confused with non resident landlord withholding obligations and receivers and it appears that is what you meant. This is not an area where a receiver will be appointed.

The second part or your question regarding optimising cash flows ? where a receiver has been appointed has me totally scratching my head.
The legal effect of receivers been appointed in effect crystallises a banks charge. The asset which was the property of the loanee is now that of the loaner. This may give rise to a disposal and all the tax consequences that flow from that. When the assets is sold, if it is eventually this may be a second disposal.

What shelter of income are you talking about? Receiver means he now takes control of the asset. Financial planning opportunities are gone at that stage. Your asset is seized, it's income no longer belongs to you and you may have poor or no communication with the receiver.

The emboldened part is not applicable in a standard receivership - there is a transfer of control of the asset not legal or beneficial interest in the asset. You may be confusing a receivership with possession proceedings (or a company liquidation).

Increasingly, receivers are being appointed in respect of small property investment portfolios and often simply to regularise debt service (ie monthly payments) rather than to foreclose and sell. The asset in a receivership never becomes the asset of the lender - all the lender can acquire is the proceeds of sale should the asset be sold by the receiver. A charged asset becomes the property of a lender where it takes possession proceedings - these are two quite different legal procedures. The receiver takes control of the asset or the cash flows therefrom at the behest of the lender (mortgagee) but as the agent of the borrower (mortgagor). This is an important distinction which has significant consequences; the legal and beneficial interest remains with the owner/borrower/mortgagee right up to the point that a contract is executed by the receiver, if at all. I am dealing with a situation at the moment where a receiver is to be appointed as a managing agent is diverting the cash flows and the lender and borrower have been unable to regularise the situation (the rental cash flows being designed and required to meet debt service on the loan). There is no power for the receiver to sell the asset as the borrower can't accelerate or call the loan - you might infer that the asset carried tax benefits which would be clawed back on an earlier sale.