Renting to my sister

Bigsis

Hi all.

Currently I own my house (mortgaged) but spend nearly all my time at my boyfriends. My sister lives with me and bit by bit her boyfriend has practically moved in too.
I have a fair bit of debt to sort out and my lovely bf has said that if I move in with him all he would expect from me is to buy food for us, leaving me plenty of cash to throw at my debts.
My sister and her boyfriend would be happy to pay my mortgage and the bills if he could move in fully.
I have a few questions about this.
-Would I have to declare this as additional income? I will only charge them exactly what I pay now. In fact I might help them out a little bit sometimes.
-Would I need permission from my mortgage provider?
-Are there any health and safety requirements I'd have to meet or anything like that?

Jowo_2

Bigsis wrote: »

-Would I have to declare this as additional income? I will only charge them exactly what I pay now. In fact I might help them out a little bit sometimes

Yes, you need to submit an annual tax return. See the landlordzone website to understand about tax. Are you aware of the CGT implications from long term letting

Bigsis wrote: »

-Would I need permission from my mortgage provider

Yes. And your insurance company.

Bigsis wrote: »

-Are there any health and safety requirements I'd have to meet or anything like that?

Loads of legislation relating to gas safety, electrical safety, EPC. See the landlordzone site.

Beware the risks of having an informal arrangement and renting out of pity - ensure that there is an AST, an inventory/schedule of condition in place, get a book on becoming a landlord so you understand your obligations.

Remember if the arrangement turns sour, it will ruin the relationship - mixing business and family rarely works.

Bigsis

Thanks for the quick reply - even if it did pee on my bonfire a bit! Though I suppose it's much better to know these things.

I did look into the Rent a Room Scheme with regards to her boyfriend - as far as I can tell you can be paid a certain amount a year without having to declare it. Though presumably I would be expected to live in the house too?

Jowo_2

Bigsis wrote: »

I did look into the Rent a Room Scheme with regards to her boyfriend - as far as I can tell you can be paid a certain amount a year without having to declare it. Though presumably I would be expected to live in the house too?

Yes, only applies when the landlord lives in the property and covers just the first £4k or so of rental income.

However, you could have an AST with your sister as the sole tenant and she could have her boyfriend as a lodger on the rent a room scheme if she wants to be that formal. If she is the sole tenant, its then easier for her to kick him out if the relationship breaks down. If they are joint tenants, its easier for you to make them both responsible for the rent so if one defaults, you can chase the other (which is difficult when its your sis but your mortgage then goes unpaid so what can you do, eh?)

Remember, there's only tax to pay if you actually make a profit (which you might want to, in order to pay down your debts...). Lots of expenses associated with it are tax deductible - repair costs (not improvements), interest portion of the mortgage, the gas safety cert/EPC costs and the like.

Bigsis

You do know your onions!
I think I prefer the idea of having them as joint tenants and though I was hoping I could get away with doing it all informally I suppose that wouldn't be the smartest thing - for any of us. It just all seems like loads of hassle!

Jowo_2

You can keep it entirely informal (apart from the compliance with tax and health and safety - failure to supply a valid gas safety certificate is a criminal offence, for example, mortgage providers are displeased if they find the owner has rented it without their consent).

You don't have to issue any paperwork whatsover - the act of the acceptance of rent creates a tenancy. Verbal agreements are valid (but notoriously hard to prove).

But what if your relationship breaks down and you need to move back and don't understand your obligations to give notice? What if your sister says 'eh, sis, things are a bit tight at the moment, will pay the rent a month late'? Or a few years down the line, they move out and you aren't happy with the condition of the property and they are adamament that it's not their fault, etc?

All of these issues are aggravated by the fact that your relationship is compromised by legal obligations and responsibilities - tenant/landlord issues suddenly become family disputes.

Landlord forums are full of tales of woe from both landlords and tenants who are friends or relatives and are disappointed how the property has been treated or managed. These tales of woe are often aggravated by huge but simple failures in the administration/paperwork that is there to prevent disputes and promote knowledge of the various responsibilities and rights of both parties.

Bigsis

I know you're right. It did occur to me that they might push their luck occasionally and ask if they could pay me a little less sometimes and that would completely mess things up for me.
I don't know which way to go at the momen - think I need to sleep on it.

Jowo_2

Sorry but the potential for sob stories and favours sounds like a recipe for disaster. If your sister and her boyfriend aren't in the position to pay market rent without some kind of sibling subsidy and aren't ready for the simple responsibilities that goes with being a tenant, such as paying the set rent on the set date, then perhaps you'd like them to take their experiment in budgeting and behaviour to another landlord...

If you do think there is a risk that your sister will apply pressure and ask to be let off paying the rent, but you do want to go ahead because it suits you, you should therefore mitigate it by setting everything up formally and setting the expectation with her that it is a proper let where favours can't be tolerated (because her failure in paying the rent when it is due can lead to you ending up with your property being repossessed).

I know I'm putting the frighteners on you with the most pessimistic scenarios which are least likely to happen but landlords do end up having to evict their friends and relatives who owe them rent and trashed their property, who are extremely upset because they were doing them a favour which got exploited.

Eyesparky

Not sure on the level of your mortgage payments etc. so difficult to judge the amounts involved. If it were me I would take them in as lodgers, keeping the house as my personal primary residence and take advantage of the rent a room scheme. The first £4250 would be tax free with the remainder being taxed as income.

Jowo_2

Yes, good idea, Eyesparky.

In law, the OP would have to live there as her primary residence - by moving out, she would automatically make them tenants and the lodger agreement would be invalidated when she stopped sharing the property with them. She'd still need to check with her mortgage provider and insurers even for lodgers, can't remember the law on lodgers and gas safety but its a good idea to get the cert anyhow.

In reality, some landlords fudge this with the consent of the other resident by keeping all address related documentation to their original property and arranging for its regular collection.

It's only private tenants whose landlord actually does this without their consent that find this practice annoying - the threads on this forum where the landlord keeps letting themselves into their home to collect post and won't arrange mail forwarding, invading the tenants privacy, who clearly hasn't got permission from their lender to rent out the property, who is probably trynig to evade tax, so needs to give the impression he's still there. These are the tenants who had no idea their landlord was so crafty and who would spoil their peace.

Eyesparky

If she chose to move back in she would have automatic right of occupancy as her primary residence. She is not going to be paying rent anywhere else and keeping the property as her primary residence would cause minimal impact to her credit record (something she is in the process of trying to improve). You would need to inform your mortgage company that there are lodgers etc. but as I read it the Sister is already a lodger. Re: dodgy landlord practices, we are talking about an arrangement with the OP's sister here so I don't think she is looking to invade their privacy or rifle their sock draw at any opportunity