Form 11 - saving tax for jointly assessed clients.

Allahan

I have two clients (jointly assessed) where one is a higher rate tax payer and the other is in the lower band. The lower band tax payer has a sole trade in painting and tiling.  They have multiple rental properties where half the profit is obviously taxed at the higher rate. Is there anything stopping me from having the lower rate tax payer (who is a painter, decorator and tiler) invoicing the rental properties for his services? In effect the reduction of renal profit at the higher rate would be reduced.

They also have a son who also has a trade (lower rate tax payer). If he was to carry out the maintenance work/management of rental properties could he invoice his parents for his work? This would increase his tax at the lower rate but save tax at the higher rate for his parents. 

All help is greatly appreciated

CIARAN_BOYLE

You can't claim a tax deduction when you are doing the work for yourself. The son of course doesn't own the rental properties so a tax deduction can be claimed. Bear in mind in the case of a Revenue audit Revenue may investigate whether the prices charged are arms length prices and assess any difference as a gift.

You can also consider the possibility of a gift between spouses (leaving the lower rate tax payer the owner of the property with the full tax on rental income being paid by him) bear in mind that stamp duty may apply in this sort of transaction but savings could occur over a number of years.

Allahan

Thanks Ciaran.

The only worry with transferring the properties is the eventual CGT that will become as I assume they will sell some of the properties relatively soon (over the next 5 years) and the SD that will become due if they are to transfer the properties back to 50/50 prior to a sale. 

I will advise on the son option and research the market value of the work he will be doing.

Thanks

CIARAN_BOYLE

Allahan wrote: »

Thanks Ciaran.

The only worry with transferring the properties is the eventual CGT that will become as I assume they will sell some of the properties relatively soon (over the next 5 years) and the SD that will become due if they are to transfer the properties back to 50/50 prior to a sale. 

I will advise on the son option and research the market value of the work he will be doing.

Thanks

Why transfer back. It won't materially change cgt. The proceeds of the sale can be gifted between spouses.

Regard the son option it's a little annoying but you can get someone to quote for the job and then have the son match the quote.

Allahan

I'm going to be honest. I am an English accountant doing this for our client's family so my Irish tax knowledge is not great
I wanted to transfer back a portion of the property/50% to utilise of both tax free allowances. This, as you say, is immaterial in the grand scheme of things and seems to be a lot more lucrative in the UK. 

In the UK if spouses own a property, say 80/20, one would declare 80% of the profit and the other 20%. In Ireland it seems that if spouses own a rental property in the same ratio as the example before (80/20) this will still be declared as 50/50 in Revenue's eyes. Am I correct with this? 
If one property is fully transferred from one spouse to the other do Revenue no longer apply their 50/50 view of the rental profit anymore?