Renting to family member

SRoberts

Hi there,

I am in need of some advice

I currently rent out three properties on a btl basis.

My mother who is mortgage free is finding her home unmanageable and wants to move into one of my properties that has recently become vacant.

We have found someone to rent her home already. They would be paying her the same amount of rent as she will be paying me.

She would like to move into my property asap but I have been told that I am not allowed to rent to a family member?

Does any one know what the implications are?

Do I need to advise my mortgage lender?

If I do not, will there be repercussions?

If my Mum moves in, do I treat her as a tenant and have to have a tenancy agreement/landlords insurance etc?

Do I have to declare this on the tax form?

Does my Mum have to declare her extra inicome, even though she'll be paying it straight to me for rent?

Or - do I need to remortgage to a resident mortgage.......

Please help!!

Thanks

00ec25

SRoberts wrote: »

She would like to move into my property asap but I have been told that I am not allowed to rent to a family member?

you can rent to a family member in certain circumstances, the main implication concerns HMRC : the capital gains tax treatment when the property is sold or transfered - private residence relief where the owner is not the occupier but rents to a family memeber (see HMRC website) and as an extreme example, if, in the future, ownership transfers between you and your mother then they will want to examine if "market rent" has been obtained if you claim lettings relief)

SRoberts wrote: »

If my Mum moves in, do I treat her as a tenant and have to have a tenancy agreement/landlords insurance etc?

morally perhaps not, but in reality yes - it will make your dealings with others much easier if the agreement rate is documented in writing, especially HMRC

Insurance - yes - she is paying you rent and is not the owner so any other form of insurance is invalid

SRoberts wrote: »

Do I have to declare this on the tax form??

YES you are receiving a rental income from a property you own which is not subject to the rent a room scheme and therefore you must declare it

SRoberts wrote: »

Does my Mum have to declare her extra inicome, even though she'll be paying it straight to me for rent

YES - she is receiving rental income from a property which she no longer lives in.

HMRC do not care about how she spends her income therefore the fact she pays it out gross is irrelevant. However, because she owns the home from which the income is being earned it must be declared on HER tax form as it is her who has earned it. Rental income outside the rent a room scheme must always be declared by the person earning it.

Morally therefore review the rent you are charging her! She will be out of pocket on the deal since she will pay more to you than she earns (net of tax) from her property.

mlz1413

Is this to be a long term move? If so can you move your btl mortgage to your mothers house and therefore she will buy your empty property from you - she then lives in a house she owns and you continue to rent a property as normal.

If this is not a long term move then I would read your BTL mortgage T&C's, are there any clauses that say you cannot rent to family or have to have permission?

If short term then your mum will be a LL of her house and you will be her LL, yes you have to have insurance and pay HMRC anything due. Most btl mortgages insist on an AST so you will need that, but you don't need to take a deposit if you don't want to.

You maybe able to change to a residential mortgage but I not sure how much this will help as your mum will still be a LL.

theartfullodger

You don't wanna do this.

Persuade mum to rent, but ANYWHERE rather than one of your houses..


NB I am sure your mum is a paragon on virtue, an excellent lady of unimpeachable character but - just hypothetically you understand....

The question you have to ask yourself is...(assuming it is just mum not mun-and-dad).

If this happens - mum moves in, meets nice man, gets married, man turns out 2 B a crook but mum infatuated and can't see the truth, rent stops being paid (HMRC still assess your income as tho' it is paid) new step-father refuses to leave... are you prepared to take legal action to evict mum?? If the answer is you are not prepared to evict mum - don't rent out to her in the 1st place..

Cheers!

tbs624

SRoberts wrote: »

.....I currently rent out three properties on a btl basis.

My mother who is mortgage free is finding her home unmanageable and wants to move into one of my properties that has recently become vacant.

We have found someone to rent her home already. They would be paying her the same amount of rent as she will be paying me.

She would like to move into my property asap but I have been told that I am not allowed to rent to a family member?

Does any one know what the implications are?

Do I need to advise my mortgage lender?

If I do not, will there be repercussions?

If my Mum moves in, do I treat her as a tenant and have to have a tenancy agreement/landlords insurance etc?

Do I have to declare this on the tax form?

Does my Mum have to declare her extra inicome, even though she'll be paying it straight to me for rent?

Or - do I need to remortgage to a resident mortgage.......

Talk to your mortgagor first. Many BTL mortgages have a specific clause about letting to family members. You would be expected to have an AST in place.

If your mother is mortgage free on her own property then a greater proportion of the rent she herself receives will be liable to tax. She will also have to comply with all regs on gas/electrical safety and tenancy deposits, provision of EPC, insurance etc for her own tenants. Is she able to manage the property herself or would you do it for her?

How have you managed to run 3 BTL properties without understanding the tax implications of letting *any* property?

What would happen if your Mum needed residential care at a later date and her own home needed to be sold to help meet the costs?

Get yourselves a fixed fee appointment with a good local lawyer and/or accountant before you do anything so that you and your mother can go through the pitfalls and/or benefits of what you are proposing.