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How do you think I should split up property tax with my investment partners?

Discussion in 'General Property Chat' started by jaybean, 3rd Feb, 2016.

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  1. jaybean

    jaybean Well-Known Member

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    Ok I'm not the greatest with math so I'm kind of stuck here.

    The last place we purchased, I wasn't able to go halves with my investing partners (my brother & sister in law) because he had maxed out his borrowing capacity.

    So I put it all under my name, which has now tipped me over the land tax threshold. We all expected this to happen so it's no surprise and we had always planned on splitting this expense fairly.

    However I'm not quite sure how to divide this. Is it just a matter of taking his percentage of my overall portfolio? And if so, do we use the land value (LV) or real market value?

    E.g. imagine the threshold was 1m, and my total land value was previously 800k. After the last purchase, it increased to 1.1m (but 1.3m in real terms), which puts me over the threshold. If we had gone halves, it wouldn't have put me over, but it has. What % of my land tax should I allocate to him?

    Three options:

    1) It seems to me that if he owns 50% of the new 300k property, that's 150k (going by the land value, not the real value, which is the correct value to use right?). So therefore, that's 150k out of 1.1m, which is 13.5%. So 13.5% of my land tax is owned by him.

    2) OR, do we say because I only crossed the land tax threshold by 100k, therefore he is only liable for 100k out of 1.1m, which is 9%?

    3) In some ways it seems unfair on him. Say he had a 100k portfolio and I had 900k. He's now paying a disproportionately high amount of tax if we split this new house's impact by 50/50. So if we were to consider his side, 150k + 100k, that's well below the threshold and therefore he shouldn't have to pay anything.

    Which one is right? I'm sure I've missed something here...

    #1 seems the most obvious way but #3 gets me thinking that maybe I'm looking at this completely wrong.
     
    Last edited: 3rd Feb, 2016
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    What you will need to do is to assess this property's entire LV as a % of all your holdings then apportion it against the land tax threshold.

    You then need to adjust for the % ownership that you have agreed with your partners. Your private arrangement for the payment/reimbursement of the effect of this property against your liability.

    (This is the same way as you would apportion the land tax liability to various tenants in a commercial property).
     
  3. jaybean

    jaybean Well-Known Member

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    Ok so LV is correct, not the actual value. I think my #1 option calcs are correct then?

    Also what do you think about this concern of mine?

    "3) In some ways it seems unfair on him. Say he had a 100k portfolio and I had 900k. He's now paying a disproportionately high amount of tax if we split this new house's impact by 50/50. So if we were to consider his side, 150k + 100k, that's well below the threshold and therefore he shouldn't have to pay anything."

    Am I overthinking #3?

    I just want what's fair
     
    Last edited: 3rd Feb, 2016
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    The calc appears OK however, if it wasn't for you having your name over 100% of this property (but a beneficial interest in 50%) you would not otherwise have been liable for any land tax whatsoever for a few more years). Consequently, you will bear 86.5% of the land tax rather than your brother. Considering that it is likely to be only marginally over the threshold, it may not be a big deal.

    You might even consider the wider picture - is he already over the land tax threshold? If he is, then he is also getting a second bite at the threshold by using yours.
     
  5. jaybean

    jaybean Well-Known Member

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    Regarding the last question, nope. Even with his half, he wouldn't have been near the threshold. This is what's confusing me about how to approach this.
     
  6. Scott No Mates

    Scott No Mates Well-Known Member

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    @jaybean This property has caused the grief and neither of you would be above the threshold. It could be argued that he owes the lot but being nice you may forgive your brother part of the tax bill.
     
  7. jaybean

    jaybean Well-Known Member

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    Why would he owe the lot when I wanted it too? It's a 50/50 venture. I didn't buy it for him because he couldn't. We both wanted in, just that we couldn't put his name on it because of his financial situation.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You will also be claiming a deduction which he cannot.
     
  9. jaybean

    jaybean Well-Known Member

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    Yup thought about that too, but one problem at a time:) But if you disregard that for a moment which of the three options do you think is correct?
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    work out the extra land tax, incurred by yourself, associated with this property and then pass half of this on.
     
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