Renting Property to Family- Housing Benefit?

SarahRobson

Hello,

My mother-in-law is coming up for retirement and her forecast isn't particularly good. She lives alone and has a mortgage of over £100k on a 3 bedroom house which she can just about afford to pay interest only on until she retires.

My husband and I aren't in the best position ourselves but we need to do something to help her. She has mental health issues and really needs to live in an area with lots of greeney and no noise from neighbours (ie no flat or terraced houses). She also really needs to be in the same place for the rest of her life as she does not handle moving well.

We're now thinking that maybe we should sell her house, use the money she makes to put down a deposit for a buy-to-let mortgage on a small 1/2 bedroom cottage and rent it out to her at the lowest rate we can afford to for as long as she's with us.

Has anybody done anything like this before? The intention is that she would claim housing benefit to cover the cost of the low rent that we charge her so that we can afford to keep her there but apparently the council are fussy about people renting to family members?

Any different suggestions would be welcome.

Thanks.

Sarah.

mjdh1957

Firstly, Google 'contrived tenancy' and read about it. There is also an issue with her depriving herself of assets, ie the money from the sale of HER house which you say YOU will use for a buy-to-let mortgage.

There are numerous threads on here about it too.

BigAunty

It is possible to rent to close family members, so long as the landlord does not live in the same property as their related tenants and the council do not consider it a contrived tenancy, set up to exploit the housing benefit system.

A contrived tenancy includes behaviour like not charging rent when they are in employment but charging it when they are on benefits.

What is the equity she will get from the property after legal/estate agent fees?

Means tested benefits like housing benefit are reduced for capital over 6k and ruled out totally for capital over 16k.

Deprivation of capital rules are in place to ensure that claimants don't intentionally give away their capital in order to maximise their benefit entitlements. This includes giving their savings or properties to friends and relatives for example. The rules are quite complex.

Also, if your mother needs a care home in future, the local council may investigate what happened to her capital to ensure that DoC has not taken place. See the Age UK website for information on home ownership and care homes.

Those that have been judged to have deliberately deprived themselves of capital are treated as if they still have it, known as notional capital.

manda1205

Can she not move in with you? Or use the money to build a granny annex? Surely your first thought should be something similar, rather than can we get the government to pay for her to live in a house we buy for her?

SarahRobson

BigAunty wrote: »

It is possible to rent to close family members, so long as the landlord does not live in the same property as their related tenants and the council do not consider it a contrived tenancy, set up to exploit the housing benefit system.

A contrived tenancy includes behaviour like not charging rent when they are in employment but charging it when they are on benefits.

What is the equity she will get from the property after legal/estate agent fees?

Means tested benefits like housing benefit are reduced for capital over 6k and ruled out totally for capital over 16k.

Deprivation of capital rules are in place to ensure that claimants don't intentionally give away their capital in order to maximise their benefit entitlements. This includes giving their savings or properties to friends and relatives for example. The rules are quite complex.

Also, if your mother needs a care home in future, the local council may investigate what happened to her capital to ensure that DoC has not taken place. See the Age UK website for information on home ownership and care homes.

Those that have been judged to have deliberately deprived themselves of capital are treated as if they still have it, known as notional capital.

We hope that she will get around 80k from the sale. Maybe if we didn't put that down on the new mortgage and just charged her rent until she uses it all up then housing benifit will take over once it's all gone?

My husband and I clearly will not gain from renting to her rather than anybody else and we really can't afford to just pay for a place for her, but if we stay in control somehow we can guarantee that she can continue to live out her days there which is our main concern.

Is it worth speaking to the council to see if they would consider it a contrived tenancy?

HappyMJ

SarahRobson wrote: »

We hope that she will get around 80k from the sale. Maybe if we didn't put that down on the new mortgage and just charged her rent until she uses it all up then housing benifit will take over once it's all gone?

My husband and I clearly will not gain from renting to her rather than anybody else and we really can't afford to just pay for a place for her, but if we stay in control somehow we can guarantee that she can continue to live out her days there which is our main concern.

Is it worth speaking to the council to see if they would consider it a contrived tenancy?

Yes speak to council...If she used up her £80,000 paying rent at the LHA rate at £335 per month for a small 1 bedroom flat that could take about 20 years or so to run down to nothing including earning a bit in interest over that time too. Then yes she would be entitled to housing benefit in 20 years time.

pmlindyloo

SarahRobson wrote: »

We hope that she will get around 80k from the sale. Maybe if we didn't put that down on the new mortgage and just charged her rent until she uses it all up then housing benifit will take over once it's all gone?

My husband and I clearly will not gain from renting to her rather than anybody else and we really can't afford to just pay for a place for her, but if we stay in control somehow we can guarantee that she can continue to live out her days there which is our main concern.

Is it worth speaking to the council to see if they would consider it a contrived tenancy?

I can fully understand your concerns and wanting to help out.

Could you afford to get a Buy To Let yourselves without using any of her money? I don't know your financial circumstances but you could explore this avenue.

If you are able to buy a small place for her yourselves then the money from the sale of her house could be used for rent. You might like to do some calculations to see how long this might last her. When/if her savings 'ran out' then you might still have a problem claiming HB because of the contrived tenancy rules.

I would seriously consider the annex idea. If you sold her house and pooled her and your money to buy a suitable place with a self contained annex then this could work very well. You would need to get it all sorted out properly as regards who owned what percentage but this could easily be done through a solicitor.

theartfullodger

This covers it pretty much...
http://england.shelter.org.uk/get_advice/paying_for_a_home/housing_benefit_and_local_housing_allowance/housing_benefit_if_renting_from_a_family_member#1

I live in a property owned by a family member

If you live in a property owned by a family member and pay them rent, you may be entitled to housing benefit. The council will want to take a detailed look at your agreement with your landlord. You won’t get housing benefit if:

• you're not paying rent on a commercial basis
• the arrangement has been set up to take advantage of the housing benefit system – this is called a ‘contrived tenancy’. For example, if your landlord only asks you to pay rent when you are not working (and so are eligible for housing benefit), but not when you are working (and earning too much to qualify for housing benefit), this would be a contrived tenancy.

However with assets of £80k (somewhere..) she very probably won't be entitled to HB/LHA .. see


http://england.shelter.org.uk/get_advice/paying_for_a_home/housing_benefit_and_local_housing_allowance/housing_benefit_calculations#2

Savings and investments

If you have savings of £16,000 or more, you will not be entitled to any housing benefit. This does not apply if you are of pension age and receive the guarantee credit of pension credit.
Savings or investments above a certain level are treated as though they produce an income for you and affect the amount of housing benefit you get:

• capital of more than £6000 – if you are of working age
• capital of more than £10,000 – if you are of pension age.

SarahRobson

manda1205 wrote: »

Can she not move in with you? Or use the money to build a granny annex? Surely your first thought should be something similar, rather than can we get the government to pay for her to live in a house we buy for her?

It was my first thought to move her in but my husband and I are a young couple with a small house in a very built up area. We've only been married for a year and aren't really established ourselves, and also with her mental health she would struggle with living with other noises etc. I looked into the annex idea but 1) we'd have to move to a much bigger house to do it (which we can't afford, even with her 80k because we'd need quite a lot of that for the annex) and 2) what if we move and then can't get planning permission?

Gah. I don't think that there's ever going to be a good answer to this situation.

roger196

Not entirely clear whether MIL wants to move or not.

If she does, have you considered buying a property jointly with MIL. Say property is £160k, she can put in her £80k for her half share and you buy the other half share using a mortgage or own savings. You can then rent your half share to MIL at a normal commercial rent. AFAIK this rent will be eligible for HB (others may correct me on this point), but you will need a BTL mortgage and gas certs etc. MIL has not deprived herself of any assets which will still be available for care homes fees. MIL's £80k is not counted towards her capital for benefit purposes as it is her ppr. The only downside is if you ever had to go on benefits, your half share would count as your capital and being over £16k would deny you JSA/HB/CTB.
IHT is not an issue as MIL's estate within nil band.

BitterAndTwisted

Eighty grand would buy a small property outright in many parts of the country. I see no particular need for any Buy-To-Let mortgages.

As she has mental-health issues I think you need to tread very warily when thinking about using any of her funds for anything other than her buying a property outright or paying her own rent with the proceeds