I don't think it would go that far, but my other half has pretty much normalised it in her head despite me telling her it's not correct, which makes it tricky.
Tax Fairness Question
- Thread starter SpeedFreak
- Start date
Caporegime
Wish I understood this sounds interesting
There is your issue. Stay out of it.
The issue is that rentals can be profitable but if the mortgage repayment is relatively fast then not always cash positive, especially if there are maintenance costs. When the central account needs topped up it is an equal split among the three, but given our income disparity as a couple I effectively cover her share.
Made up numbers but imagine 40k rental income from properties with 10k of allowable expenses and £30k capital repayment. This creates a tax liability of £8k based on the current structure. i.e a net 8k cash outflow. I end up covering her £2.66k "share" of that, when in reality it should only be £2k. Every year. And there's two of them doing it.
Made up numbers but imagine 40k rental income from properties with 10k of allowable expenses and £30k capital repayment. This creates a tax liability of £8k based on the current structure. i.e a net 8k cash outflow. I end up covering her £2.66k "share" of that, when in reality it should only be £2k. Every year. And there's two of them doing it.
Soldato
I'm not an accountant but I think I follow what you've said & I would do as Foghorn says. Tell him that you and he aren't going to agree so let's have an independant 3rd party take a look and suggest a course of action.
If he's adamant that he won't do that then he's in full knowledge that he's in the wrong & doesn't want to be found out.
I'm not an accountant (and always been paid PAYE) so maybe I have not understood correctly, but what does student loan/grant and tax rate have to do with how much tax they should all pay for this 'property business'?
If they are all equal partners, then surely any profits get split 3 ways. Any tax due gets split 3 ways. Any personal circumstances such as the personal tax rate and student loan etc is all up to the individual, nothing to do with the rest of the partners.
Genuinely curious as this seems like common sense, but it seems I'm missing something as everyone is saying that A is in the wrong.
If they are all equal partners, then surely any profits get split 3 ways. Any tax due gets split 3 ways. Any personal circumstances such as the personal tax rate and student loan etc is all up to the individual, nothing to do with the rest of the partners.
Genuinely curious as this seems like common sense, but it seems I'm missing something as everyone is saying that A is in the wrong.
Soldato
It's a Partnership as opposed to a Limited Company (Ltd). In a LTD, the tax is paid by the business, as it's its own tax entity.
In a Partnership, though, the profit is calculated and split according to the partnership agreement. In this case, it should be 1/3rd each, and then each person reports their share of the profit on their own tax return, alongside any other income.
In this case, one partner has high enough other income that they effectively pay 40% tax on this partnership income, whereas for the other two it is only taxed at 20%.
And that 40% tax partner thinks the business should pay him more than the others because of the extra tax he pays.
Thanks for that
I get it now. If they are all getting 1/3 of the profits, then that is A's problem that he is a higher tax rate payer and has nothing to do with B & C.
He should therefore be paying more tax, agreed!
Humans excel at creating situations that unfairly benefit them and then making up justifications for it that they truly convince themselves are reasonable.
In this case pretty clear that party A is the architect of the agreement and did just this, to the detriment of his own siblings.
In this case pretty clear that party A is the architect of the agreement and did just this, to the detriment of his own siblings.
Associate
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Also he wants B and C's extra student loan liabilities to be treated differently because technically it's not classed as a tax.
The student loan is irrelevant here and not a burden, they'll still have it if they don't pay it off.
A is being a chancer, his personal tax liability is irrelevant, if they're supposed to be getting an equal split then they should get an equal split, if he earns a bit more elsewhere meaning he pays a higher rate of tax on his profits here then that's his own problem.
He could go live in the Channel Islands or Isle of Man if he wants to reduce his personal tax liability, those are personal decisions to make on his part.
A is being a chancer, his personal tax liability is irrelevant, if they're supposed to be getting an equal split then they should get an equal split, if he earns a bit more elsewhere meaning he pays a higher rate of tax on his profits here then that's his own problem.
He could go live in the Channel Islands or Isle of Man if he wants to reduce his personal tax liability, those are personal decisions to make on his part.
I was being argumentative on the student loans to get a point across i.e. they are due to personal circumstances so should not be in scope, much the same as the impact of A being a higher rate tax payer.
Ah, fair point, I think perhaps if A doesn't see sense then getting a third party to review it (as you have that interest yourself via your partner) should sort it out, though really he must surely know he's being a complete chancer, especially if he's an accountant.
Soldato
I don't really know anything about how partnerships like this normally work, but seems very odd to me that income tax and student loan repayments are being paid directly by the partnership. Seems to me that each sibling should be getting an equal share of the profits and then sorting their own tax and student loan payments out.
Just make no sense that A should deserve more money purely because he earns enough through other sources that he's a higher rate tax payer. A is cheating his siblings and essentially getting them to subsidise his tax bill imo.
Just make no sense that A should deserve more money purely because he earns enough through other sources that he's a higher rate tax payer. A is cheating his siblings and essentially getting them to subsidise his tax bill imo.
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Keep all the money. Run away.
A is a ****. Each persons tax situation and personal loan situation is irrelevant to how the profit should be split. Could there be another factor such as A putting in more of the initial deposit or meeting more of the maintenance costs?
But the problem you'll have is that B and C agreed to this structure at the very start. So if it has been going on a while then it's going to be hard to change it and may cause a rift between the siblings, with A saying they would neverf have agreed to the partnership under those conditions. The only solution is to sleep with A's mum. And dad.
But the problem you'll have is that B and C agreed to this structure at the very start. So if it has been going on a while then it's going to be hard to change it and may cause a rift between the siblings, with A saying they would neverf have agreed to the partnership under those conditions. The only solution is to sleep with A's mum. And dad.
Soldato
For the record, I'm with everyone else, A is just a *****
I do sense trouble ahead..
Ahh, look, I've seen familes fall apart over this kind of thing. I would certainly advise my Wife about the fairness/legalities, but make sure she is effectively instructing you to help.. Sadly some people prefer the status quo and will happily sit there for the sake of keeping the peace and you are rarely thanked for doing the right thing technically if it blows open family relationships! Just be careful!
If you are sorting it out, don't come up with some wonky split, make it equal, circumstances change (not to mention tax thresholds), and when you have an equal burden putting money in, it should be an equal expression of profits to each partner.. Personal circumstances aside.. so what if she might encroach marginally on the higher rate tax bracket, it's still more money (of hopefully an equal split).
I do sense trouble ahead..
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I'll just make my point and then step back to be honest. Profit split 3 ways, distribute an equal dividend and then settle your personal tax liabilities. Nothing else is correct or fair.
There are no dividends if the business is set up as a partnership. He will eventually end up with an overdrawn current account if he takes more than his share of the profits every year. Easiest way is surely just for everyone to take their share of the profits each year so each partners current account is effectively zero (or an agreed amount to leave cash in the bank account). Then everyone sorts out their own tax bill from their own funds.
Soldato
Sounds good, although (to be balanced) when it's your Wife, it's hard to stand by and not push to get the right thing done, I'm just speaking as an outsider where emotions can be parked and objectivity is easy!