Is my sister my landlord?

gofishin

Hi All - First post so please bear with me.

I have just moved into my sisters home, and am paying her mortgage whilst she is living in Australia. She previously had tenants in there, and had been paying income tax on the rental income.

Now i have moved in i would consider myself as living "in a family home" - does anyone know whether or not (in the eyes of the Inland Revenue) i would be deemed as a tenant?

Hope someone can help..

Rafter

Just because you are a family member, doesn't mean that income tax rules don't apply.

Even if parents charge their adult children 'rent' it is still taxable.

You may be able to get some 'rent a room' relief but not sure how this works if the principle owner is overseas.

Having said that, if you are only covering the mortgage interest and wear and tear cost, your sister shouldn't have any tax to pay as there will be no taxable profit from the arrangement. She still needs to declare this on an annual tax return though.

R.

Robert_Sterling_3

Can some one "rent" their home in this manner at less than a market rent?
Is the person living in the house "earning" the difference between the "arms length" rent and the subsidised rent for "looking after" the house?

Trow

Chances are that the payments towards the mortgage are not just interest - a portion of it will probably be towards the principle loan, which is not allowable for tax.

Plumpud_3

You need booklet IR150 from the Inland Revenue. It covers nearly everything to do with property rental.

The mortgage you are paying will be treated as rent, but is offset by the mortgage interest (but only of the part of the mortgage originally taken out to buy the property - any other loans/mortgages secured on the property may not be allowable).

As your sister is abroad she may be entitled to her own personal allowances. She needs to contact her own tax office.

She can charge what rent she likes, but if it is not at the normal market rate, then any losses cannot usually be carried forward, nor set against any other income from property in that year. Most importantly, it will seriously affect her position for Capital Gains Tax if she sells the property. Again she needs to speak to her own tax office.

Plumpud_3

Sorry, forgot to say 'rent a room' can only be claimed if the landlord/owner is living in the property at the same time the room or rooms are being rented out.

gofishin

Quote " Even if parents charge their adult children 'rent' it is still taxable." - Jeez - my parents must owe the taxman a fortune. lol

Thanks for your Input on this guys - i'll pass this onto my sis and hope that the tax doc helps ;D

dag_2

Now i have moved in i would consider myself as living "in a family home" - does anyone know whether or not (in the eyes of the Inland Revenue) i would be deemed as a tenant?

Correct me if I'm wrong anyone, but you are an assured shorthold tenant, and your sister cannot legally evict you without a court order - however, your sister only needs to give you two months notice, and doesn't need to give you a reason for eviction.

Even if you are a rent-paying lodger; if the host family moves out, and leaves you behind, you automatically become their tenant. If you weren't the only lodger, it becomes a "house in multiple occupation".

So I would guess that your payment of her mortgage counts as rent. Like Trow says, capital repayments aren't allowable for tax. Correct me if I'm wrong, but mortgage interest payments aren't allowable for tax on properties that you live in yourself, but are allowable for tax on properties that you are letting to tenants - like Plumpud says.

Most importantly, it will seriously affect her position for Capital Gains Tax if she sells the property.

True - but strictly speaking, capital gains tax is chargeable on any property that isn't your main residence - and whether you let it or not shouldn't make any difference. In other words, even if she doesn't charge you any rent, she may still incur capital gains tax liability upon selling by letting you live there rent-free, that she wouldn't have incurred if she stayed there herself.

Plumpud_3

True - but strictly speaking, capital gains tax is chargeable on any property that isn't your main residence - and whether you let it or not shouldn't make any difference. In other words, even if she doesn't charge you any rent, she may still incur capital gains tax liability upon selling by letting you live there rent-free, that she wouldn't have incurred if she stayed there herself.

Yes but she may be able to elect it as her main residence even if she is not living there. There are a number of 'loopholes' involving capital gains tax, the fact that she is abroad may also have a bearing, depending on why she is there. That is why she needs to speak to her own tax office about it.