Tax Fairness Question

Thanks @Pudney @Foghorn Leghorn @wonko @cheesyboy and others for the input, it's really helpful. I have kicked off the conversation with B & C and am advising that they move to a more formal accounting pack to track effective reserves, partner loans and disbursements etc.... Digging a little further this first became a more prominent point of disparity in the 17/18 tax year when the implementation of Section 24 limited the relief available on mortgage interest for higher rate tax payers to 20%. There were smaller differences before then, but at that time the portfolio was also smaller and rents were 20%+ lower, which I think is why this mostly went under the radar or fell into a "what's a few hundred quid between siblings" rationale. Now things are much more substantial they can no longer manage it in such an informal manner. I'll try to add updates on progress, but expect this will be a slow one!
 
Reviving this as he's crossed the 100k income threshold so is losing personal allowance now. Wants reimbursed for the marginal 60%. Tried unsuccessfully to nip this in the bud last time, definitely need to do so now. Urgh, family politics...
 
Not a chance if I was in your place.

My view is still pretty much the same as before.. any income minus any business related outgoings from property business should be divided by number of people, so in this case 3. The only time this should differ is if there are some specific expenditures/time that a person invests.. ie someone invested more money, someone is doing the 'DIY' on the place etc but it should be in writing either way.

Whatever way you look at it though the total income a person earns in a tax year has absolutely zero relevance to how much someone should be entitled to from any source of income.
 
If B and C are happy with it, then why bother arguing over it?

As mentioned above, B and C need to be the ones advocating for equal shares, clearly its unequal, but the golden rule is never get in the way of family matters it never ends well..

If I was B or C, I'd at least ask for the student loan being paid as well, and possibly just verbally tell them you are now a super high rate earner on 50% tax and wish it all back.
 
Reviving this as he's crossed the 100k income threshold so is losing personal allowance now. Wants reimbursed for the marginal 60%. Tried unsuccessfully to nip this in the bud last time, definitely need to do so now. Urgh, family politics...

If A B and C all share equal ownership, then B + C should force a sale of the property in question, and GTFO.

Alternatively wash your hands of this, unless you are B or C?
 
I have to agree with the majority on this one Sibling A is taking the ****

If Sibling A wants to be an **** then just convince B + C to walk away from the partnership. I'm not sure on the legalities but if the majority decide to sell then unless A can get cash/mortgage to buy them out the he loses everything as all 3 properties would be sold?

1> B + C force a sale of properties take the proceeds and reinvest together in a new partnership or LLC or go their own way
2> B + C demand either of the following
>2.1> Immediate Cash payment of the £11k + Each to B + C (£22k+) for the 5+ years of underpayments and immediately set up LLC with Split Profits
>2.2> A forfeits all profits until B + C recover the (22k+) in under payments. But still liable for his share of Fees/Maintenance and immediately set up LLC with Split Profits
3> Force an outcome as if Lending/Mortgages are involved and your income has been factored into affordability then contact lenders saying your now jobless which in turn will force one of the above to happen
4> If properties are of similar value then transfer ownership to each own 1 property.
 
From memory "A" is an accountant?

It's a joke that they are even asking B&C to reduce their share of the profits in the business to cover "A's" "PERSONAL" tax situation.

As the word suggests - your personal tax situation is your own, and absolutely NOT to be funded/covered by other people.

Untaxed profits are distributed to its members. They then pay tax on the value of their portion... It's very clear under LLP.
 
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If B and C are happy with it, then why bother arguing over it?

As mentioned above, B and C need to be the ones advocating for equal shares, clearly its unequal, but the golden rule is never get in the way of family matters it never ends well..

If I was B or C, I'd at least ask for the student loan being paid as well, and possibly just verbally tell them you are now a super high rate earner on 50% tax and wish it all back.
B and C aren't particularly happy, but at the same time get anxious around confrontation. The thing is, personal allowance, student loan, child benefit could all be considered. There are so many variables if we go down this rabbit hole. My logic is:

A earns £100k salaried and business provides a further £15k. Business drives 15/115k = 13% of their tax burden. Tax on £115k is £36.4k. Business has driven £4.7k of their tax bill.

B/C earn £45k salaried and business provides a further £15k. Business drives 15/60 = 25% of their tax burden. Tax on £60k is £11.4k. Business has driven £2.9k of their tax bill. (Current process would pay 20% x 15k = £3k, essentially about right.)

The marginal tax is absolutely not the fault of the business. Current ask of A is for the business to provide £9k (60% (40% plus personal allowance unwind) x £15k). Even the £4.7k is generous, instead being a purist the business should pay salary to each owner of £3k and then the tax bill is your own responsibility. A needs to top up their tax return by £6k.
 
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B and C aren't particularly happy, but at the same time get anxious around confrontation. The thing is, personal allowance, student loan, child benefit could all be considered. There are so many variables if we go down this rabbit hole. My logic is:

A earns £100k salaried and business provides a further £15k. Business drives 15/115k = 13% of their tax burden. Tax on £115k is £36.4k. Business has driven £4.7k of their tax bill.

B/C earn £45k salaried and business provides a further £15k. Business drives 15/60 = 25% of their tax burden. Tax on £60k is £11.4k. Business has driven £2.9k of their tax bill. (Current process would pay 20% x 15k = £3k, essentially about right.)

The marginal tax is absolutely not the fault of the business. Current ask of A is for the business to provide £9k (60% (40% plus personal allowance unwind) x £15k). Even the £4.7k is generous, instead being a purist the business should pay salary to each owner of £3k and then the tax bill is your own responsibility. A needs to top up their tax return by £6k.

Simple response to ALL of the above is.

Your tax situation is your own PERSONAL TAX situation..... in effect - "it's your problem"

If all parties are equal shares in the LLP, then they all receive equal profits/distributions from the LLP. The tax each individual pays is based on their own situation, and NOTHING to do with the LLP/business.

Despite B&C's reluctant to front this up... They need to immediately. Otherwise, where does it all end if "A" overall income continues to rise and rise....They will keep asking for more and more from the business/LLP.
 
B and C aren't particularly happy, but at the same time get anxious around confrontation. The thing is, personal allowance, student loan, child benefit could all be considered. There are so many variables if we go down this rabbit hole. My logic is:

I think this is the problem. There are 2 options for B&C

1 - Keep avoiding confrontation and back down. If they choose to do this then they just need to accept it as it is, rather than complaining but not pursuing it.
2 - Insist on setting this up fairly or diluting the portfolio

I think the problem is the current thing of backing down and quieting complaining about it. Obviously this is a typical British mentality :p
 
From an accounting perspective it makes sense that everyone receives an equal gross amount and sorts out their tax later.

But it sounds like there is some nuance here. E.g. if there was a gentleman's agreement that everyone receives equal net amount, or someone has stumped up more capital. If person A didn't get their "tax relief" then they may not have joined the partnership and it never got off the ground etc.
 
None of the above, all have equal contribution to the business capital, it's just a nuance of A being an accountant so sets out the tax calculation for their annual returns. The business then funds the payment of the marginal tax liability.
 
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Response has been, to paraphrase:

"It's not fair that I have to pay 60% tax".
"I have built the business for B and C". - Ignoring that seed capital came from parents and they have all jumped in to do any work that is needed to maintain/manage the properties and equally took on debt to finance it.
"Don't worry about my tax". - Nice of A to recognise that it is their tax and not B and Cs tax.
 
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