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Renting my house to friends.... possibly
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# 1
oakesy2001uk
Old 07-12-2011, 8:58 PM
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Default Renting my house to friends.... possibly

I bought a house 2 1/2 years ago that I have not decided if I want to rent or sell yet. But I am buying another house to live in and move in soon! I have secured that mortgage independently of the other with everything disclosed (I work for a bank). So money wise I don't need any advice, however I don't fancy paying both mortgages for long!! and I dont think now is the best time to sell if I don't have to.

One of my best friends (my best man, father of my godson) is happy to house sit, or rent the house from us as it suits him to do so.

What is the best way of doing this tax wise?
I want him to be responsible for council tax etc... really.

I understand If I rent it at market value to him, I have to pay 20% of the difference between the interest and the rental, which he is happy to do.
My interest is 432.50 at present although the mortgage is a 30 year repayment which I can overpay on (just starting as it have to re-arrange it so I don't have to live there), and the house would rent for 550-600 so its not the end of the world, I assume I can do this within my tax code being a small amount....

I have no want to make money from him, just to have my costs covered, so am I allowed to rent it to him for just the interest?

I also need a rental agreement of some sort for the insurance company (as I now a policy that allows me not to live there and rent it out if I want to, which I can get through work)
Any templates on line from drawing up a simple agreement?

The other issue is, do I now have to sell it within 3 years to avoid capital gains tax? even if I rent for no profit?
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# 2
Yorkie1
Old 07-12-2011, 9:03 PM
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Oh dear. Renting to friends or family is almost universally a really really bad idea. It leads to different expectations and massive fallings-out. What if he lost his job? Would you be prepared to evict him?

Read this thread all about renting. It all applies.
http://forums.moneysavingexpert.com/...2&postcount=12

I don't understand your comments about 20%. What do you mean and where did your info come from?

CGT is not payable within 3 years of the property ceasing to be your principal residence. After that it applies in principle if you make a profit and subject to allowances.
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# 3
sooz
Old 07-12-2011, 9:08 PM
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Does the rent you propose to charge actually cover your entire mortgage payments?

Have you asked your mortgage company if they will give you consent to let?

You are allowed to let it to him for any amount of money you want, providing your mortgage company agrees . Double the market rent. Half the market rent. See what they say.

If renting to a friend, I would still treat them as any other renter.

So, full reference & credit checking. Blame the mortgage co if you want to protect your friendship.

Likewise, spend money on using an independent inventory clerk. You pay incoming, your tenant pays outgoing. It will save you headaches in the long run. It will then be the clerk telling your friend he is a messy s*d who never cleaned the loo or weeded the garden, not you.
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# 4
ViolaLass
Old 07-12-2011, 9:11 PM
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Quote:
Originally Posted by Yorkie1 View Post

I don't understand your comments about 20%. What do you mean and where did your info come from?
Income tax, presumably.
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# 5
Yorkie1
Old 07-12-2011, 9:16 PM
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Quote:
Originally Posted by ViolaLass View Post
Income tax, presumably.
You're probably right; it was the reference to the tenant paying it which threw me though:

Quote:
I understand If I rent it at market value to him, I have to pay 20% of the difference between the interest and the rental, which he is happy to do.
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# 6
Werdnal
Old 07-12-2011, 9:19 PM
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And remember that if you do rent it out long term, and eventually sell, you will incur CGT as it will not be your main residence.

I would 2nd the advice above - do it all officially with a proper tenancy agreement, deposit (protected) etc. Make sure you are abiding by all the legal requirements (EPC, Gas safety cert), and declaring your income for tax.

Friends and relatives do not make better tenants than complete strangers - relationships can become very strained if one side of the T/LL arrangement wants things done differently than the other. Put it all in writing and treat the "tenant" as you would anyone else you may rent to in the future. Keep it businesslike and insist they do aswell, otherwise its a recipe for disaster!
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# 7
BitterAndTwisted
Old 07-12-2011, 9:31 PM
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You'd be mad to rent the property for precisely what the interest is on the mortgage. Where will you ge the money from to carry out repairs and maintenance, the Gas Safety Checks, replacing that knackered washing-machine, the new carpets which will needed to be replaced eventually?

How pleased will your chim be when you need to increase the rent when interest-rates inevitably rise?

As previously mentioned doing business with friends or family is fraught with potential difficulties.

Join a landlords association.
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# 8
googler
Old 07-12-2011, 9:32 PM
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Never do business with friends or family
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# 9
oakesy2001uk
Old 07-12-2011, 9:44 PM
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I'm not supplying appliances or furnishings, the carpets are knackered anyway I have purposely not replaced them until I know what I'm doing, and when I'm selling. etc... etc....

Income tax I meant above..... I assume they can take this out of my tax code, being quite a small amount of profit in this case depending what I rent it to him for....

Interest rate is fixed for 2 years, during which time I could sell it if the next round of fixed rates is too high if he didn't want to pay it. the new mortgage is done on the basis I can rent. As I said that side of things is covered. I can (just about) afford both mortgages, or else I wouldn't be doing this. As I said, I work in finance, the money side of things I don't need advice on...

I was posting for advice on how to do this best in terms of the structure of renting to him whilst I decide what I'm doing... I am thinking rent it at just under the market rate (which is a little more than the interest), with a proper rental agreement, but just wondered if it benefitted me doing it in any other way. If I don't sell soon, I will want to in a couple of years, as I will need the money to extend my new house before I start a family.

And also if there were any templates or such for drawing up a rental agreement online??

As I said I will then need to sell within 3 years if house prices rise... or move back in for 6 months (which I don't fancy, I like my new house and plan to stay there).

Last edited by oakesy2001uk; 07-12-2011 at 9:46 PM.
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# 10
Werdnal
Old 07-12-2011, 9:54 PM
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When you say "if you don't sell soon" - are you planning to rent to your mate, but still keep it on the market? This too is never a wise move - it can limit the interest you will get as any possible buyers will be advised to wait until you have vacant possession before they proceed (this is a requirement of residential mortgages as I am sure with your financial experience you will appreciate).

If you are intending to offer your mate a proper, legally binding AST agreement, you cannot "evict" them until at least 6 months from the tenancy start date. If you do get any interested buyers, ask yourself whether they would be willing to wait that long?
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# 11
Yorkie1
Old 07-12-2011, 9:55 PM
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You will need to do a self-assessment tax return.

Join a LL's association and they will be able to supply you with tenancy agreements which are suitable. The joining fee is tax deductible. Did you read the post I linked to and all the associated documents? There are quite a few answers in there ...
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# 12
oakesy2001uk
Old 07-12-2011, 10:09 PM
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Quote:
Originally Posted by Werdnal View Post
When you say "if you don't sell soon" - are you planning to rent to your mate, but still keep it on the market? This too is never a wise move - it can limit the interest you will get as any possible buyers will be advised to wait until you have vacant possession before they proceed (this is a requirement of residential mortgages as I am sure with your financial experience you will appreciate).

If you are intending to offer your mate a proper, legally binding AST agreement, you cannot "evict" them until at least 6 months from the tenancy start date. If you do get any interested buyers, ask yourself whether they would be willing to wait that long?
The property is not on the market. Hence me asking how best to rent it.... By selling I meant in a year or two's time... or rent long term, possibly not to my friend, on either my or his part this could well be short term....

I would rather have him and my godson in there than a stranger regardless of the possible pitfalls. I trust him more than a stranger. With that being said, I want to do this properly to avoid any issues just in case.

I'll look at joining a landlords association so I can get a tenancy agreement from them. Thanks for that advice.

I have read somewhere that you can have small amounts of rental income like this taxed through PAYE, is this not true?

Last edited by oakesy2001uk; 07-12-2011 at 10:15 PM.
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# 13
G_M
Old 07-12-2011, 10:13 PM
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I second all the advice above.

1) Make a decision - sell or rent. Not both. And not "I'll rent for a bit and see how it goes." Make a decision.

2) If you rent - do it properly. See here and start reading.

3) Don't rent to a mate. Or a relative. Just don't. It's not a question of trust. Trust doesn't help if he loses his job/gets sick and the rent isn't paid and the ortgage arrears mount up. A stranger you can deal with. A mate.... sympathy /understanding gets in the way.

4) Tenancy Agreement? Here.

Last edited by G_M; 07-12-2011 at 10:16 PM.
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# 14
Yorkie1
Old 08-12-2011, 7:19 PM
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I don't know whether HMRC simply adjust future tax codes if there is tax payable - but you will have to do a self-assessment tax return first. How else can HMRC assess what tax you owe?
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# 15
louisa_84
Old 08-12-2011, 7:25 PM
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Quote:
Originally Posted by Yorkie1 View Post
Oh dear. Renting to friends or family is almost universally a really really bad idea. It leads to different expectations and massive fallings-out. What if he lost his job? Would you be prepared to evict him?

Read this thread all about renting. It all applies.
http://forums.moneysavingexpert.com/...2&postcount=12

I don't understand your comments about 20%. What do you mean and where did your info come from?

CGT is not payable within 3 years of the property ceasing to be your principal residence. After that it applies in principle if you make a profit and subject to allowances.

I lost my entire family from renting from my mum. Dont do it is my advice.
Aug 2011 took the big jump onto the property ladder WoooooooooTs!!
Wedding fund May 26th 2012 - 6000/6000
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