Tax Tribunal Rules Out Landlord Dad's Claim for Paying Son

The right for landlords to deduct paying a relative working in their property business was highlighted in a case before a tax tribunal. 

Landlords can pay friends and relatives who are not co-owners of buy to let homes carry out work for them - and deduct the wages they pay against income or corporation tax. 

The tax case Nicholson v HMRC [2018] UKFTT 14 (TC) clarifies how to claim the business expense. 

The issue was if a self-employed taxpayer could pay his son wages and deduct them as an expense to reduce income tax. 

In the case before the tax tribunal, the father paid his son £7,400 in wages and deducted the amount as a business expense in the accounts. 

The payment was based on a 15-hour week at £10 an hour for promoting the business online, delivering leaflets and carrying out computer work. 

At the time, the son was a student living away from home. 

HMRC opposed the claim, saying the father had no evidence of the work. 

The tax authority also argued the payment was not solely for the business but mainly in kind with a dual purpose of supporting the son at university as the father bought food and drink rather than paying the supposed wages in cash. 

The First-Tier Tax Tribunal agreed with HMRC and rejected the claim - but pointed out that the deduction would have stood had the father kept better records.

“If he had paid his son on a more time recorded basis or had there been some form of methodology in calculating the amount payable and an accurate record maintained of the number of hours his son worked, the claim would have had a better chance of succeeding,” said the tribunal.