Tax implications if renting main residence and paying rent elsewhere

bmsawye

My mother (age 82) wants to move to a retirement flat. As she is having problems selling her flat which she owns 100%, my plan is that I buy the retirement flat through an extension to my mortgage (agreed by my bank). My mother would then rent out her flat (her main residence). She would pay me a contribution to cover the my additional interest payments.

My aim is to keep these transactions as simple and tax neutral as possible. I am not looking to make money or reduce existing income tax I pay (but I am 40% tax payer).

Questions:
1. Can the contributions be offset as an allowance against the rent she receives on her flat to reduce her taxable income.
2. Will the contributions count as taxable income for me.
3. My spouse does not pay tax. Would it make sense that the retirement flat is purchased in my spouse's name rather than jointly in both our names.

The transaction is moving very quickly as my low offer on the retirement flat has been accepted. All advice extremely gratefully received.

silvercar

Your mother rents out her home, so she declares the rental income. Check how it effects her tax situation and any pension/ benefits.

She then rents the retirement home from you. Pays you a rent and you declare this income and pay tax if appropriate. The interest you pay on the increase in the mortgage used to fund the flat purchase is an allowable expense against the rental income.

feisty1

Also renting from you (family) can affect yr mother's entitlements, best taking advice