Best way to let parents stay in 2nd home?

Savvy_Sue

alphabeta77 wrote: »

So just to be clear, are you saying if I let my parents stay in the house for free, I'd still be liable for tax on my non-existent profits from the non-existent rent???

that's my understanding, but I may be wrong, and I stand by my earlier advice to get some proper professional advice, of the kind you can 'rely' on, ie sue the person giving it if it turns out they got it wrong.

I am pretty well certain that if you / your spouse needed to claim any means-tested benefits, then the fact that you own a second house would seriously affect that, and its value would either be counted as savings, or a notional income from renting it would be assumed, or both.

BTW, I assumed earlier that you have a spouse, and that you own the house jointly with this spouse, but you never actually say this. I'm also assuming it's your parents, so if any of that is wrong, do say ...

However, with those assumptions, and while we're on the doom and gloom side of things, if you and your spouse split up, then this house is part of your matrimonial assets. So if it gets nasty, there's a possibility that your parents could be made homeless.

So whatever you decide to do, you all need to be aware of the 'what if' questions, and have some answers at the ready, preferably drawn up into a legal agreement.

CLAPTON

Savvy_Sue wrote: »

I know you are more knowledgeable than I am, but my understanding was that if you did NOT charge rent in this situation, HMRC could still tax you on what you 'ought' to have had in rent.

just for the record, if no rent is paid then no tax is due.

one can provide for friends and relatives if one wishes without being taxed

you may be thinking of situation about gifts with reservation and IHT but that's a different story

Savvy_Sue

CLAPTON wrote: »

just for the record, if no rent is paid then no tax is due.

one can provide for friends and relatives if one wishes without being taxed

you may be thinking of situation about gifts with reservation and IHT but that's a different story

Thanks for that clarification: it was indeed a slightly different situation (leaving some things in storage and whether or not rent would be due, also tied in with some other complications with a friend) I'd been told about.

alphabeta77

Ok, thanks very much for the advice all, really useful pointers in the right direction.

So it sounds like easiest options are:

a) charge interest/costs only and avoidance tax issues (except CGT if/when we sold - although given state of housing market, it may well mean HMRC owes me money... Oh they only take don't they...)

b) other option is to let them live free in the house - in this instance does this count as renting even? Obviously would get all the gas certs etc done out of good practice, but am wondering if I'd need to pick a buy to let mortgage etc if I'm not renting it.

Basically want to help parents get back on their feet as soon as poss, so any advice much appreciated!

xylophone

You have a standard residential mortgage on the house you've vacated?
You will continue to pay the mortgage? Presumably you can afford this as well as paying the mortgage on your new property (if there is one).
You plan to let your parents live in the house rent free? If so, no tax liability.
Have you advised the mortgage provider?
Have you advised your insurer?
Will the utilities and council tax stay in your name? If so, presumably you will seek reimbursement from your parents of the exact amounts of the bills only and will keep records to this effect?

alphabeta77

Hi Xylophone,

Here's the answers to your questions:
You have a standard residential mortgage on the house you've vacated?
Yes

You will continue to pay the mortgage? Presumably you can afford this as well as paying the mortgage on your new property (if there is one).
Yes

You plan to let your parents live in the house rent free? If so, no tax liability.
Yes - or as advised above, could charge them just the interest (ie make no profit from it - but start from former as a working assumption)

Have you advised the mortgage provider?
Not yet - don't really know what to advise them of (ie do I need to change to buy-to-let or get a certificate of approval or whatever it's called)

Have you advised your insurer?
Again, not yet - plan to keep buildings ins in my name and let parents deal with contents (as it's their stuff!)


Will the utilities and council tax stay in your name? If so, presumably you will seek reimbursement from your parents of the exact amounts of the bills only and will keep records to this effect?
Not sure - whichever's easier, could keep in my name and get reimbursement as you describe or they could just pay them - is one easiest/less bureaucratic?

xylophone

It seems to me that if you charged them the interest on the mortgage this could be interpreted as rent and bring up tax issues?

If you are no longer living in the property but have full time "lodgers", I think that you will need to advise both the mortgage lender and your insurers - it is not just a matter of your parents' "stuff" but of the actual fabric of the house - suppose there were a fire and the house burnt down?

In your position, I would be inclined to contact both mortgage lender and insurers before entering into any arrangement with your parents or indeed anyone else.