Renting to family

tiamaria

Hi, what we are thinking of doing should be simple but most of these things have pitfalls so any advice will be welcome.

scenario:-

My partner came to live with me and he rents out his flat that he has a mortgage on.

My elderly mum would like to move into this flat as her
house (although small) is too much for her to manage.This house is left to me in her will.

We can't afford to lose the rent money from the flat so she's left with the options of either selling or renting her house. We can't see any benefit in selling, however if she rents it out she will be able to pay us the same rent we're getting now and have some left over for herself.

As a pensioner I'm assuming she won't pay tax & OH can carry on paying his as usual.

Am I forgetting anything? Is there anything I need to watch out for? we don't want to inadvertently break any laws;)

PasturesNew

If she sold her house, the benefit would be that she'd have lots of lovely cash to spend having a nice time.

tiamaria

If she did that she'd only give it away, that's how she is. She's already given away most of her cash to her grandchildren. The only thing she spends money on is her home when it needs things. I'd love for her to do or have something for herself but it's a struggle to get her to leave the house and it's not through lack of trying on our part.

In any case if she did that eventually her money would run out. It's only a small property.

LydiaJ

tiamaria wrote: »

As a pensioner I'm assuming she won't pay tax & OH can carry on paying his as usual.

That depends on what kind of pension she gets and how much of it. In any case, she may well be liable for CGT if she sells when it's ceased to be her primary residence. Without figures, it's impossible to tell.

Hope you manage to make it work out for all three of you.

Jowo_2

Landlords who receive an income from their properties pay tax on it and I'm not certain her OAP status exempts her from paying tax on business profits. If the rented property has to be sold in future, this could lead to a liability to pay CGT, up to 28% of taxable gain.

How much of her savings did she gift to her relatives? Google 'deprivation of capital' and 'notional capital' to understand the risks involved when people may need means tested services, such as a care home, and they are held responsible for giving away their assets and savings.

tiamaria

Thanks, knew there had to be a problem or 2!

I didn't realise she'd have to pay CGT if she's renting but she'd be very unlikely to sell as she'd live in the flat for the rest of her life all being well. I'm guessing you mean if she needs to go into care? We'd never want to do that but I suppose you never know.

Never thought about gifting either,she's perfectly healthy atm and I'm sure that never entered her head. it certainly wasn't much by most people's standards, she just wanted for them to have something from her while she was still here.

Her pension is only the basic afaik, though she has about £25 a month from my late father's pension but that's taken off her basic pension.

Am I right in thinking that there's a minimum yearly amount someone can gift without it being deprivation of capital?

G_M

Income tax: The rent from her house will be taxable, though of course she has her normal tax free allowance. So it depends how much rent she gets, how much her pension is and what her allowance is. If she's single and aged 65 -74 her allowance this year is £9490. See here.

Capital Gains Tax. Once the house ceases to be her main residence, CGT will be payable when the house is sold. This applies both during her lifetime (ie if she needs the cash to pay for residential care etc) and on/after her death. If she sells it now no CPG would be payable as it is currently her residence. Tax free allowances for CGT are here.

If she rents the house there are also many issues related to being a landlord. Even if using a reputable agent, it can be stressful, time-consuming and problematic. And if the house is empty for a period, or the 'tenants-from-hell' stop paying her rent, then how could she pay your partners rent, so how could he pay his mortgage. True, an unlikely scenario, but you need to go into renting with both eyes open.

ps - does she have a mortgage? she'd permission to rent.

tiamaria

Thanks G-M, that's not what I want to hear but it's what I needed to know.

tiamaria

Hi again

JUst re-reading this and I'm not sure I understand -

"This applies both during her lifetime (ie if she needs the cash to pay for residential care etc) and on/after her death."

If she's living in the flat & eventually dies(not that I want to think about it really), the house would be left to me - It's not worth enough to be liable for inheritance tax, would I have to pay CGT?

I didn't know CGT was paid on a persons estate after death.

G_M

tiamaria wrote: »

Hi again

JUst re-reading this and I'm not sure I understand -

"This applies both during her lifetime (ie if she needs the cash to pay for residential care etc) and on/after her death."

If she's living in the flat & eventually dies(not that I want to think about it really), the house would be left to me - It's not worth enough to be liable for inheritance tax, would I have to pay CGT?

I didn't know CGT was paid on a persons estate after death.

CGT is payable when the gain is made ie when it is sold. So certainly, if on her deat the executers of her will sold the house (which was not her main residence) to distribute the money, then I believe CGT would be payable. I suspect this would apply also if the house was transferred into your name rather than being sold.

However I stress that I am not a tax expert.

If these aspects of your options are important I suggest you ring the HMRC here. Give them the hyperthetical scenario and they are usually surprisingly helpful!