Lodger or tenant or something else?

smartpicture

I'm planning to buy a flat in London for my daughter and her girlfriend to live in. They were going to rent, but it would cost £1000pm minimum and in any case they can't find anywhere as they're snapped up the second they go on the market. So I thought I'd buy somewhere as an investment, and the girlfriend could pay me say, a bit less than the £500 she would have paid but hopefully in a slightly nicer place.

But what does that make her - a lodger, a tenant or neither? What kind of paperwork do I need in place to protect my investment if they split up?

hethmar

Will the house be in your name or your daughters. When you say "girlfriend" is that in a "life partner" way or just a mate who will be staying with her?

G_M

You will be a landlord. With ALL the responsibilities of a landlord.

Your daughter will be your tenant and the friend will be her lodger (this gives the friend few rights).

OR you could issue a joint tenancy agreement in both their names and they would both be tenants (they both then have similar tenant rights).

You MUST read up on what is involved (note - the rent you receive will be taxable income) and much more. Do NOT assume that because it is in the family you can avoid the legislation, tax, mortgage CTL etc.

Start here.

edit: I've assumed the house stays in your name - you are not giving her the house?

Werdnal

Firstly, if you are buying with a mortgage, it would obviously need to be a BTL agreement, and insurance would need to be landlord based.

If you are retaining ownership of the property, and not living there yourself, both your daughter and her friend would be your tenants. You would therefore be wise to use a formal tenancy agreement, which gives them both legal rights as tenants, and protects them from illegal eviction. Even though we are talking family here, there are numerous posts about how letting to relations can go sour, so making it right from the start, sets everything right for everyone involved.

You would still be bound by legal landlord responsibilities of gas safety inspections (if applicable), maintenance obligations, deposit protection (if applicable). You also need to declare rental income for tax.

You could make your daughter your only tenant, and allow her to sub-let to her friend as a lodger. This makes your daughter responsible for the "lodger" arrangement, and she would also have to declare the rental income paid by the lodger for tax. Lodgers have very few rights and can be evicted relatively quickly. However, if they are "partners" rather than friends, the lodger route may complicate things. I would go for the joint tenants route myself!

may_fair

It's better and simpler if your daughter is your sole tenant, and pays you all of the rent (e.g. £1,000pcm) and the girlfriend pays rent to your daughter - which'd make the girlfriend your daughter's lodger and your daughter the landlord of the girlfriend.

The advantage is that your daughter can evict the girlfriend easily if things don't work out (because lodgers are excluded occupiers and the landlord of a lodger doesn't need a court order to evict).

Whereas, if you granted a joint tenancy to both your daughter and the girlfriend, with both of them paying rent direct to you, then in order to evict the girlfriend, you'd have to bring proceedings to evict both your daughter and the girlfriend together/jointly to get rid.

Direct your daughter to: http://www.lodgerlandlord.co.uk/

may_fair

Werdnal wrote: »

You could make your daughter your only tenant, and allow her to sub-let to her friend as a lodger.

If the daughter didn't grant exclusive occupation to the lodger, she wouldn't be subletting.

smartpicture

The girlfriend is a life-partner kind of girlfriend, not just a friend who is a girl. So could she still be a lodger? If so, this might be better as the income would then be in her name and she's a student who doesn't pay tax whereas I pay 40% tax. Does it count as a lodger situation if they're sleeping together though?

Irrespective of which way we do it, would my daughter have to pay rent to me? Because I was planning to pay her rent for her, so it seems a bit silly to have to give her £500 a month so she can give it straight back to me in rent, together with the £500 from the girlfriend, and then I have to pay tax on that income presumably, which I've already paid tax on once. Could I charge her a nominal rent? If they're joint tenants, could I charge her £1pm and the other joint tenant £500pm, even though it's well below market rent?

The house would remain in my name.

G_M

The amount of rent you charge is entirely up to you.

If they're joint tenants, could I charge her £1pm and the other joint tenant £500pm,

No. If they are joint tenants, by definition there is a single rent (£501?) for which they are both equally responsible, ('jointly and severally')/

Does it count as a lodger situation if they're sleeping together though?

Their private life and sleeping arrangements are irrelevant!

as the income would then be in her name and she's a student who doesn't pay tax whereas I pay 40% tax.

If the rent you charge is £501, then that is what you must declare for tax - though there are amounts you can offset against it - read the links in my firt post! Whether it comes form you daughter, or the friend, or both, it's still £501 that you receive.

If your daughter has a lodeger who pays HER £500 then that is income that SHE receives. But under the government 'Rent-a-room' scheme she can earn up to £4250 pa tax free.

N79

Obviously you will seek the advice of your solicitor but, given what you want to achieve, then the best bet is probably a licence to occupy for your daughter, who then issues a licence to occupy to the girlfriend. IE the girlfriend is your daughters lodger and you can use the licence between yourself and your daughter to set any conditions on your daughter's occupancy.

You are still a LL though, and will need to meet the various LL obligations (eg gas safety).

This method only works if you charge your daughter no rent (or rent of only a few pounds per year).

This approach has the advantage that you have no tax liability (if daughter pays no rent) as the rent from the girlfriend is your daughter's income. However, be aware that this approach, while simple, is not tax efficient.

theartfullodger

G_M wrote: »

The amount of rent you charge is entirely up to you.

Careful: Two things
.
- HMRC may decide you actually are - or should be - charging a higher, "market" rent rate & tax you on that basis..
- If daughter loses job/income & has to apply for HB/LHA then the rules on this are complex & tricky (largely to avoid obvious fraud opportunities..) and if rent is not market rate etc daughter may get nothing.. with consequential unhappy parent..
.

But under the government 'Rent-a-room' scheme she can earn up to £4250 pa tax free.

"Earn" might be unclear here - "receive" might be better - rent-a-room is about the rent charged, before expenses... if over £4,250 she'd need to declare rent, with allowable expenses to reduce the amount..

Cheers!

N79

theartfullodger wrote: »

Careful: Two things
.
- HMRC may decide you actually are - or should be - charging a higher, "market" rent rate & tax you on that basis..
- If daughter loses job/income & has to apply for HB/LHA then the rules on this are complex & tricky (largely to avoid obvious fraud opportunities..) and if rent is not market rate etc daughter may get nothing.. with consequential unhappy parent..

If we take the OP's aim of providing his daughter with free accommodation (while not providing free accommodation for her girlfriend) at face value then neither of these is a concern. HMRC will not interfere in the housing of a dependent (or near dependent) family member and since the daughter is not paying for her accommodation then they have no need for housing benefit.