Property Partnership enquiry

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    Property Partnership enquiry

    Hi,
    I have a couple of properties which are in joint name between me and my partner, however, at the moment I have put in all of the money for the deposit of the mortgage on the properties, with the idea that my partner is paying me interest on the amount of the money that he owes me, i.e. half of the the deposit. so at the moment my partner has no financial risk in the property apart from agreeing to pay interest on the amount he owes me. In due course he will pay me the money which is owed.

    My question is should any profits be split 50-50 or should it be split differently. We both split the renovation and running time between us it is just the money which is uneven and I am not sure what to do.

    Any advice would be most helpfull..


    Allan

    #2
    It's not what you intend it to be, but what you've created

    As joint owners the rent is automatically split 50/50 from the point of view of profits/losses. You can't decide to allocate it differently as the inland revenue won't allow you to.

    If you have not entered into a formal financial arrangement with your partner then you might find that he is still entitled to 50% of the equity in the property even though you've put in most of the money yourself. When it is sold you might find that you have a problem if your relaitonship/partnership fails. As you don't say whether you're female or male and you don't say whether you are business partners or co-habitating partners then I can't suggest any other solution. There are inheritance tax advantages to heterosxual relationships such as marriage. The more detail you give the better answer you'll receive.
    The advice I give should not be construed as a definitive answer, and is without prejudice or liability. You are advised to consult a specialist solicitor or other person of equal legal standing.

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      #3
      Property Partnership enquiry

      Thanks for the reply Paul, my partner that I refer to is a friend/bussiness partner that I work with, and originally we decided to do the property investment thing and all was to be 50/50, and our first property worked out fine , but the other 3 have not been 50/50 in the financial way but just 50/50 in the work put into it.
      The 2nd property has now been sold, and the money owed to me was returned.
      My concern is that as I have put in most, if not all of the money, is it fair to split the profits 50/50 even though he is paying interest as a loan fro the money outstanding.
      I suspect that it is fair, as he could have had a loan from a bank and paid me that way, it is just that the loan is from me!

      I want to get some agreement about the loan in writing betwenn us, can we just prepare something and get our signatures witnessed to make it a legal document?
      Allan

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        #4
        I would suggest splitting profits 50/50. It does not matter how he has found the money to put in, the fact is it is there. As you have already said, he owes you the money, and so in fact the money put in IS 50/50, youve just lent it to him. I would probably prefer, personally in future, to draw up an agreement or something, saying that profits will be split 50/50, but you own the assets. Therefore the profits are split fairly according to the work, but if you provide all the money for the property, you receive the benefit of any increase in value.
        Any posts by myself are my opinion ONLY. They should never be taken as correct or factual without confirmation from a legal professional. All information is given without prejudice or liability.

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          #5
          The normal rule is that all profits are shared in the same proportion in which the property is owned.

          To keep things simple, why doesn't your partner borrow the money from the bank rather than from you?

          On another note, the interest he is paying you is taxable on you as income and you should declare it in your tax return.

          Your friend should be able to claim interest payment to you as a deduction against his share of the rental income in his tax return.

          Consider that you may be possibly treated as property developers and therefore this would be treated as a business rather than an investment. As such it would be taxed under income tax rules rather than capital gains tax rules.

          Ramnik
          Private advice is available for a fee by sending a private message.

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