Renting Property From Parents - Minimising Tax & Other Costs

ben.bayliss

Hi there.

I'm moving back towards home to start a new job, and my parents have agreed to let me live in a flat they own.

Currently they have a tenant in there paying rent, of which ~10% goes to the letting agent, and then 40% of the remainder goes in Income Tax. Their arrangements are not tax efficient at all, but that's another story.

I obviously will be paying rent on the property as it's only fair and proper (plus I have other siblings who shouldn't be made to feel like I'm getting special treatment), but my question is how to do this to hopefully avoid the fees mentioned above, given that all parties are related so is a personal matter.

Not paying Agent fees is easy - we simply draw up a contract (if one exists at all) without the services of the Estate Agent. The big question is about the tax...

Can I simply pay my parents rent which they needn't declare? Can we count these payments as 'gifts' to somehow avoid tax, up to some annual limit?

I'm hoping there's some solution to this so that I can negotiate a good deal with them whereby they are better off than at present each month due to not losing ~50% of the rent, and I can get the place for a slight discount

Thanks all!

housebuyer_abc

ben.bayliss wrote: »

Hi there.

I'm moving back towards home to start a new job, and my parents have agreed to let me live in a flat they own.

Currently they have a tenant in there paying rent, of which ~10% goes to the letting agent, and then 40% of the remainder goes in Income Tax. Their arrangements are not tax efficient at all, but that's another story.

I obviously will be paying rent on the property as it's only fair and proper (plus I have other siblings who shouldn't be made to feel like I'm getting special treatment), but my question is how to do this to hopefully avoid the fees mentioned above, given that all parties are related so is a personal matter.

Not paying Agent fees is easy - we simply draw up a contract (if one exists at all) without the services of the Estate Agent. The big question is about the tax...

Can I simply pay my parents rent which they needn't declare? Can we count these payments as 'gifts' to somehow avoid tax, up to some annual limit?

I'm hoping there's some solution to this so that I can negotiate a good deal with them whereby they are better off than at present each month due to not losing ~50% of the rent, and I can get the place for a slight discount

Thanks all!

There is no problem at all with you paying them rent without them declaring up to some annual limit so long as that annual limit is zero.

Any other income is just that - income. If your parents want you to have a 50% discount thats fine, but they still need to pay the tax on the 50% you give them.

ben.bayliss

Under IHT rules you can gift away £3000 per annum to an individual without a tax liability.

Presumably that works in both directions along the family tree? What is to stop an informal 'rent as gift' agreement being set up?