Renting to Family?

needsahand

Hi,
I'm hoping someone may be able to give me some information on a situation I am in.

I've recently been given the opportunity to cash buy a new property to move into as home. I currently have a mortgage on a property that we wish to hold onto and possibly use as a pension in years to come or to leave to family. I want to move my mother in and she will effectively be renting but only paying the amount of the mortgage repayments.

My main concern is; do I have to change my mortgage to a BTL or can I just carry on as I am with what we have? Also I imagine that with my mother paying the repayment amount I will be taxed on this, Is this true and can if so can I bring the tax amount down?

Any help would be greatly appreciated.

Thanks

Werdnal

Residential mortgage terms mean you must be resident. If you are not, then at very least you need to obtain consent to let - some lenders agree, some add extra costs and clauses, and others refuse. If you cannot get CTL, you will need to change to BTL. Your house insurance would also need to change to relfect the fact that you are not living there.

Also, are you aware of the other legal requirements? Letting the family can be fraught with problems, and it is always wise to draw up a simple written tenancy agreement just to cover both sides of the letting arrangement. You would also need an annual gas safety certificate if there are any gas appliances. You must also declare your rental income for tax - income is income, regardless of whether it is from family or an unrelated tenant, and HMRC need to know about it.

There are certain costs associated with running a let that are allowable for tax, but you can only use the interest on the mortgage. You will need to complete an annual self-assessment form, and the guidance from HMRC will tell you the allowable costs.

jamie11

needsahand wrote: »

My main concern is; do I have to change my mortgage to a BTL or can I just carry on as I am with what we have? Also I imagine that with my mother paying the repayment amount I will be taxed on this, Is this true and can if so can I bring the tax amount down?

Any help would be greatly appreciated.

Thanks

Yes you will, you will also have to comply with all the other rules and regulations that come with being a landlord, like the yearly gas safe check and certificate, have landlords insurance on the building etc. etc., and yes the rent must be declared to HMRC.

I suggest you ask on the tax forum about how to reduce your tax legally.

needsahand

Thanks for the info so far. Surely there is a way around this so I can keep my current mortgage in place? I know this is naive but can I not just say I am still paying the mortgage and what my mother gives me is a monthly gift?

jamie11

needsahand wrote: »

I know this is naive

You're right, it is.

You will be far better off in the case of things going wrong if you do it properly in the first place. Renting to family members is a minefield.

00ec25

needsahand wrote: »

Thanks for the info so far. Surely there is a way around this so I can keep my current mortgage in place? I know this is naive but can I not just say I am still paying the mortgage and what my mother gives me is a monthly gift?

there are numerous threads on here about people asking what are the implications of not getting permission from your mortgage lender, there is no cast iron certainty of the outcome if you fail to inform them but you really won't do that will you! The ultimate risk is the mortgage company calls in the loan.

If you deny she is your legal tenant then are you also not going to comply witht he LL requirements pointed out by the other posters? Gas safety breach is a criminal prosecution by the HSE, its not a minor civil offence

Youir mother giving a regualr "gift" whilst living in a property you own simply has undeclared income written all over it - HMRC are not that naive - how will they know you ask? Well someone nearly always shops you to them

Jeffrey_Shaw

Beware: the people in your family to whom you let will find it difficult or impossible to claim HB/LHA [Housing Benefit/ Local Housing Allowance]. The Local Housing Authority will see the scheme as a 'Contrived Tenancy' created purely to increase housing costs to the public purse.

Werdnal

needsahand wrote: »

Thanks for the info so far. Surely there is a way around this so I can keep my current mortgage in place? I know this is naive but can I not just say I am still paying the mortgage and what my mother gives me is a monthly gift?

Whether you are still paying the mortgage or not is irrelevant - YOU will not be living there, so a residential mortgage, taken on the terms and conditions that YOU are resident is a breach of the contract you signed when you took the loan.

Also, any financial gift should really be declared. I know in reality it probably doesn't happen, but a regular payment of this type will count as income and HMRC take a very dim view of tax evasion.

And as for "how will they find out?" With so many govenment agencies having access to each others records these days, it is only a matter of time before someone notices changes of address on things like electoral roll, council tax, utility bills, driving licence, infact anything you and/or your mother register officially for.

I would say do it properly or not at all. You could lose your mortgage, be done for tax evasion and your mum could find herself homeless! Is it worth the risk of not completing a few legal documents and playing by the rules?!

Jeffrey_Shaw

...and invalidate the property insurance, too!

needsahand

Thanks for all of your comments. I'm currently going down the route of getting consent to let from our mortgage provider and doing this initially as a short term solution. Thet have said this can be done for up to four years and then I can review the situation once this comes to an end.

G_M

Smart move. Now that you've decided to do it properly, read this post here.