united-kingdom tax-law real-estate gift
UK: Can I give money to my brother instead of him paying income tax on a share of my rental income?
<p>Let's say my brother acts as guarantor for my mortgage, so that I can buy a bigger house than before. He does not put his name on the house deeds, and he does not contribute to mortgage payments, I can still afford these on my own. I then make ~£9000 a year profit in renting out 3 of the rooms, and in 5 years, the house increases in value by £30,000.</p>

<p>My brother then wants to buy a house. As a thank you for putting his name on my mortgage and helping me, I want to give him £30,000, to help him with his deposit.</p>

<p>Would the law see this as a gift (tax free), or would they see it as us trying to avoid income tax that we would have to pay, if for example, we decided to pay my brother in rental income from my house instead?</p>

<p>It is certainly possible to give gifts to your relatives (or to anyone really). But, the harder question is whether or not it is really a gift.</p>

<p>A characterization of a transaction as a gift is less likely to be questioned if it is between related parties, and it is less likely to be questioned if it isn't obviously a quid pro quo.</p>

<p>If you told your brother that you would make a gift to him of all of the appreciation in the house, if he made the guarantee in advance, it would be a guarantee fee (or an equitable or nominee ownership) rather than a gift. But, with the timing and motives described in this post, it is certainly a closer call.</p>

<p>The fact that the "gift" amount exactly matches the appreciation casts doubt on the theory that this is really a gift, but doesn't absolutely clearly require the conclusion that it is not.</p>

<p>This could end up being resolved either way, and ultimately, could be very dependent upon the detailed facts and how they are presented to the person determining if tax is owed.</p>

<p>This seems to be more a question about whether you can deduct the payment to your brother from your income than whether he will have to pay tax on the money he receives.  </p>

<p>Money received can be tax free if it is a gift or a reimbursement for something paid or previously given.  </p>

<p>You can deduct the payments yourself if they are income to the recipient, i.e., interest on a loan, or for professional services or work done that improves the value of the property.</p>

<p>There may be exceptions to these general rules based on your jurisdiction.  But it seems like you have a decision to make - deduction for you or income to your brother.</p>
