Renting to family - slightly complicated

socrates

luckyrunsofar wrote: »

Socrates, the mortgage will be with an individual

Can you please expand on this?

luckyrunsofar

The loan will come from an individual (another family member... other side), rather than a bank.

socrates

luckyrunsofar wrote: »

The loan will come from an individual (another family member... other side), rather than a bank.

Now I understand what you mean by 'private mortgage' it has taken hours for us to get to the bottom of that.

It only remains for me to wish you the best of luck with your new venture.

luckyrunsofar

thanks all

Snooze

The legalities and financial aspects have been covered already but my concern would be what do you have in place to cover the repayments if the T can no longer pay the rent? Of course your response to that will be that it's coming to you as HB and everything is hunkydory but I know from personal experience that circumstances can have a nasty habit of changing just when you aren't expecting them, leaving you with some difficult decisions to make.

I remember a story a guy I used to work with once told me about how he let one of his houses out to his nephew who was on HB at the time. Seemed like a win-win situation but then suddenly the HB got stopped (can't remember the exact details but it was something to do with not delcaring a change in circumstances) and the nephew couldn't get a job to pay the rent and couldn't claim HB anymore either. After a couple of months of this the mortgage was in arrears but the T refused to move out because he had no money to go elsewhere. It got real messy and came down to an eviction notice where after 9 months of going through the courts he was eventually forced out. It cost the LL several thousand pounds in loans and interest to keep up with the repayments (money which he never saw back) but worst of all it split the whole family up as - in the Ts side of the family's opinion - he should have been "more understanding" :rolleyes: and evicting a family member was "despicable" :rolleyes: (but I guess having your property repo'd is okay then?).

There's an unwritten rule about never mixing business with friends or family and it's there for a reason. People would do well to heed it.

Something for you to think on anyway.

Rob

tbs624

luckyrunsofar wrote: »

The loan will come from an individual (another family member... other side), rather than a bank.

Are there any more family members in on this scheme to profit from the benefit system?

luckyrunsofar

tbs624, please think about what you are saying before you post.

1) I buy the house, have a "normal" tenant, get profit, pay mortgage. Family member is on HB living somewhere else.

2) I buy the house, have family member as a tenant who claims HB, the tenant I would have had above goes somewhere else.

Either way its the same, the profit doesnt change (it decreases if anything!), no difference except that I can ensure my family has a good home, and I have a tenant that I am familiar with (peace of mind more important than rental income)

Rob - I appreciate your comments, but in terms of affordability, I would not take this on if I could not afford having it empty (or no rental income) for a good while. As for mixing family and business, its a risk I have to take.

tbs624

luckyrunsofar wrote: »

tbs624, please think about what you are saying before you post....

luckyrunsofar, it may disappoint you to know that I do and I did You may want to take your own advice.

luckyrunsofar wrote: »

.....Either way its the same, the profit doesnt change (it decreases if anything!), no difference except that I can ensure my family has a good home, and I have a tenant that I am familiar with (peace of mind more important than rental income)

..so perhaps you'd like to expand on how this part from an earlier post fits in with with such philanthropy?

luckyrunsofar wrote:

....if my close relative is claiming housing benefit and the rent is below this, I read that they are able to keep the difference up to £15 a week. Could they gift this to me, so that I dont have to pay 40% tax on it? Is this avoidance or evasion, or in a grey area?..

You want the state to fund your relative's housing, but you also want to profit personally from the situation, as presumably does the other caring relative who is prepared to put up the additional finance> Add to that that you also want to try to avoid declaring unearned income to HMRC. If your relative is in such a dire state that she needs to claim LHA do you not perhaps think that she'd benefit more from retaining that potential extra 15 quid a week herself, as intended under the rules? What you are suggesting sounds mighty like fraud to me, never mind the moral issues.

There is, as most of us recognise, toally inadequate provision of decent social housing but that does not mean that all of us should hold the same views on the way in which some people apparently seek to work the system.

Fire_Fox

luckyrunsofar wrote: »

I mentioned raising capital because technically I could pay £25k off my mortgage, then remortgage it out again so I have borrowed for the deposit on the new property (and thus can claim the tax relief on this). But thats starting to make it a bit too complicated (and I dont know if this is even necessary). It would only be beneficial if the rate on my existing mortgage is higher, obviously.

I dont know why it sounds like a contrived tenancy. I may buy it even without letting to family..

The bit in bold sounds pretty contrived to me! :rotfl:

luckyrunsofar

I would not be doing this if it was loss making, and yes, I want to legally minimize outgoings and tax. As you and others have stated, it (the £15 thing) would probably be viewed as fraud and therefore I would not do it. There is no moral issue, countlesss others find ways to avoid tax, including our own government employees.

Regarding the contrived comment, no argument there! People can pay a lot to have someone plan their tax efficiency!