Subletting to avoid tax

R411Y3

Hi

I have a flat where the mortgage would be around £600 vs a rent of £1000. I also pay back a personal loan from my parent of about 350 a month. Could I let my flat to my parents for 600, therefore incurring no tax and stop paying them the loan. They could then rent it out for £1000pm, however they would not pay any tax as they are expats living in the UAE.

Thoughts?

fengirl_2

Your parents would be liable to tax on any income arising in the UK, so they may be liable to tax on the rent, depending on their other income.

R411Y3

fengirl wrote: »

Your parents would be liable to tax on any income arising in the UK, so they may be liable to tax on the rent, depending on their other income.

However they do not earn anything in the UK, as they live in the UAE (tax free). Even if they were taxed, it would be under their allowance.

Ian_W

R411Y3 wrote: »

I have a flat where the mortgage would be around £600 vs a rent of £1000. I also pay back a personal loan from my parent of about 350 a month. Could I let my flat to my parents for 600, therefore incurring no tax and stop paying them the loan. They could then rent it out for £1000pm, however they would not pay any tax as they are expats living in the UAE.

Thoughts?

Yes, but it's not clear from your question whether you live in the flat or rent it out and whether it's mortgaged or not - but here are some thoughts:
1. Why wouldn't you be liable for tax on the "rent" your parents pay you?
2. If it's mortgaged on a residential mortgage you'd require lenders approval to let it and they may charge a fee or a higher % interest rate. I'd be surprised if lenders would approve you letting other than on an AST [assured shorthold tenancy] which doesn't normally allow your tenants [parents] to sub-let.
3. If it's already on a BTL mortgage then AST is usually a requirement.
4. What's in it for your parents, even if it's tax free? They would have to maintain the property, pay letting agents, provide gas certs etc and cover any voids [empty months] which is stretching it for £50pm more than they're getting now.