Renting flat from parent - tax implications?

chump

Hi,

For the last 4 years i've lived with my dad paying rent. he owns the property. Now he has moved out to live with a woman he is seeing. He has let me stay in his flat and will continue to pay the same rent. He will continue to pay the mortgage.

I've just been made unemployed so now i need to claim JSA and potentially Housing Benefit. When I phoned Job Centre today they seemed confused how I was paying rent to my dad when he wasn't a registered landlord and hinted that he should be paying tax on my rent.

Now I dont want to get him in trouble with the tax man. Where do I stand and more importantly where does he stand legally. If it's going to get him into trouble then I'd rather just not claim and hope i can get another job.

Thanks

scottishblondie

If he is receiving rent from you then yes, he should be declaring it to the HMRC and paying income tax on it. He could have used the "Rent-a-Room" scheme to get at least part of it tax free while you were a lodger with him, but he should have been declaring it for the last 4 years.

You mention "registered landlord" - are you in Scotland? If yes then he MUST be registered with the local authority as a landlord and the property needs to have a gas certificate (applicable everywhere).

chump

scottishblondie wrote: »

If he is receiving rent from you then yes, he should be declaring it to the HMRC and paying income tax on it. He could have used the "Rent-a-Room" scheme to get at least part of it tax free while you were a lodger with him, but he should have been declaring it for the last 4 years.

You mention "registered landlord" - are you in Scotland? If yes then he MUST be registered with the local authority as a landlord and the property needs to have a gas certificate (applicable everywhere).

thanks. no im in England - it was just the wording the guy in the job centre used.

the rent-a-room thing is interesting. i could name 20-30 people i know who live with their parents (and are over 18) and pay rent to them. Not 1 of them pay any kind of tax to HMRC. How on earth is that enforceable?

MX5huggy

I don't believe you will be able to get housing benefit on a property that a relation owns.

And yes he should have been paying tax on the rent you have been paying him since he moved out (minus allowable expenses, mainly mortgage interest).

scottishblondie

Ok fair enough, living with a parent you can get away with paying "digs money" - I guess the scheme is much more applicable to people who have lodgers.

But now that he has moved out you if you are paying him money they he is definitely your landlord. Since you're in England he doesn't need to be registered, but you do need to be aware that what you have now could be called a "contrived tenancy" which would exclude you from receiving HB. Google the term to find out more.

G_M

Strictly speaking, if parents are getting rent from their children, it is income, so should be taxed.
In reality - as you say, hard to enforce. The 'rent' may not be formally agreed or a fixed amount, and may be a 'contribution' ie for food etc. Within family, it is often 'fudged' and tax not paid.

The rent-a-room scheme applies to lodgers (sharing property with their landlord. Details here.

In you current situation there are several issues:
1) You are a tenant now, not a lodger. Your dad is a landlord. Tax becomes an issue for your dad.
2) His legal responsibilities become heavier (eg the property needs a landlords gas safety certificate BY LAW etc etc). He should learn what's involved and is advised to join a landlords association for help (it's tax deductable) Details here.
3) Your benefit claims. The local authority may not pay out as they may consider the rent as 'contrived' ie only being paid to dad to enable you to claim it - speak to CAB ?

Some Shelter info here.

And the following from a government site:

"
Contrived tenancy

You cannot claim HB if the local council believes that your liability to pay rent has been created to take advantage of the HB scheme. For example, if you live rent-free while you are in work, but have to pay rent when you are unemployed.
If you can satisfy the local authority that the arrangement was not intended to exploit the HB system, you may be able to get benefit."

chump

thanks all for the great advice!

tbs624

chump wrote: »

thanks. no im in England - it was just the wording the guy in the job centre used.

the rent-a-room thing is interesting. i could name 20-30 people i know who live with their parents (and are over 18) and pay rent to them. Not 1 of them pay any kind of tax to HMRC. How on earth is that enforceable?

The Rent A Room Sceme allows a resident homeowner to receive up to £4250 per annum without having to pay tax on it.

If your dad has only recently moved out then his rental income from you living there by yourself as a *tenant* falls into the tax year April 2010- April 2011 so must be declared by him to HMRC + any tax paid by Jan 2012.

You need to have a formal tenancy agreement drawn up and your Dad should have sought Consent to Let from his lender if he has a mortgage on the property. Does he have a LL buildings/contents insurance policy? He will also need to have an annual gas safety cert done and keep records of income and expenditure.

If you can show that you have already been paying rent, that this is a formal tenancy and that you are not simply trying to set up what is called a "contrived tenancy", then you should be able to claim LHA.

real1314

chump wrote: »

Hi,

For the last 4 years i've lived with my dad paying rent. he owns the property. Now he has moved out to live with a woman he is seeing. He has let me stay in his flat and will continue to pay the same rent. He will continue to pay the mortgage.

I've just been made unemployed so now i need to claim JSA and potentially Housing Benefit. When I phoned Job Centre today they seemed confused how I was paying rent to my dad when he wasn't a registered landlord and hinted that he should be paying tax on my rent.

Now I dont want to get him in trouble with the tax man. Where do I stand and more importantly where does he stand legally. If it's going to get him into trouble then I'd rather just not claim and hope i can get another job.

Thanks

The interest portion of his mortgage can be offset against the rent you have been paying. depending on how much each is, he might have no tax to pay anyway.