Renting to my sister?

mrman80

Hoping for a little bit of advice really.

My wife and I are in the process of buying a family home to give us more space than the 2 bed we currently live in.

Our current house is mortgaged under my wifes name and the new house will be under mine.

The idea is to rent our current house to my sister for a few years before deciding whether to keep the house on and let through an agent or sell once my sister has moved on.

We will be asking for the equivalent of the mortgage so not interested in making money from the agreement just helping my sister out really.

We are not planning on a formal contract etc.. so i was wondering whether it was worth us informing the bank about the arrangement or leaving it and not telling them unless it looks like it is going to be a long term arrangement either with my sister occupying or indeed a "tenant".

I don`t want the hassle really of switching mortgages, increased payments (LL insurance etc..) when its just my "sister living at our house" until she gets back on her feet.

Obviously the above would need to be done if we ever rented out to a stranger etc..

Advice?

corbyboy

You will probably get away with it if you don't tell the bank.

But you better hope that the house doesn't burn down or suffer any severe damage as your house insurance won't pay out.

You also better hope that your relationship with your sister doesn't sour and she doesn't stop paying rent as you will have a lot of trouble getting her out.

I can see a lot of potential trouble on the horizon.

bris

When you say "until she gets back on her feet" what do you mean by this? If she is on LHA then the council will not pay as they may well see it as a contrived tenancy, this is normal when renting to family.
If you don't give her an AST you run the risk of her becoming a sitting tenant, this you do not want, even for a sister.

Better_Days

It is commendable that you want to help your sister. But you can do this properly and still help her. I would advise a formal tenancy agreement, but you can set the rent at whatever you like. (Although if I remember correctly you will not be able to incur rental losses for income tax purposes if you let at a non-commercial rent.)

I really would get the insurance side of things done properly. Having had a couple of run ins with insurers (one which dragged on over 5 years and I had to get a solicitor involved) they will do anything to wiggle out of paying.

My main concern is that either your sisters or your circumstances may change, redundancy, children, illness. At least with a proper tenancy agreement on maybe a 6 month basis everyone will know where they are.

Others who know more about tenancy will probably be along to advise - but you may inadvertently end up creating a tenancy anyway.

mrman80

bris wrote: »

When you say "until she gets back on her feet" what do you mean by this? If she is on LHA then the council will not pay as they may well see it as a contrived tenancy, this is normal when renting to family.
If you don't give her an AST you run the risk of her becoming a sitting tenant, this you do not want, even for a sister.

What I mean by back on her feet is nothing to do with financial worries or constraints. She has recently come out of a relationship and would like to move to a "better" area but can not stretch to the rents where we live. I would only require enough to cover the mortage which equates to what she is currently paying in her house.

IN simple terms

bigger house in better area for the same money she is laying out now.

00ec25

mrman80 wrote: »

We will be asking for the equivalent of the mortgage so not interested in making money from the agreement just helping my sister out really.

if you are on a repayment mortgage (rather than an interest only mortgage) then the capital element of your monthly patyment is regarded as income for tax purposes and you will have to pay income tax on that

either way, becuase you receive income (she her mortgage payment is rent , aka income) from property you MUST inform HMRC of this fact and they will notify you if they want you to do a full blown tax return or just send them a letter detailing the payments

mrman80

00ec25 wrote: »

if you are on a repayment mortgage (rather than an interest only mortgage) then the capital element of your monthly patyment is regarded as income for tax purposes and you will have to pay income tax on that

either way, becuase you receive income (she her mortgage payment is rent , aka income) from property you MUST inform HMRC of this fact and they will notify you if they want you to do a full blown tax return or just send them a letter detailing the payments

Thank you I hadn`t factored that element in.

Luckily my wife has recently gone down to part time at work to look after our little boy and the mortgage is in her name so we shouldn`t be hit massively by tax.

BitterAndTwisted

Just because there may be no formal written agreement does not mean that your relationship will not become of landlord and tenant. I'd be very wary indeed of not requesting Consent-To-Let from your lender, as that could void your buildings insurance. And just because you don't think you will be making a profit on this arrangement does not mean that you won't have to declare the rental-income for tax-purposes: you do.

The usual advice is to NEVER, EVER go into a business arrangement with family or friends. And this will be a business arrangement even if you don't consider it to be.

tbs624

The terms and conditions of your wife's residential mortgage will be that the property is occupied by her, as her main residence.

If she is moving out and handing over exlusive occupation of the property to the sister, in return for payment then your wife will be her sister's LL.

As well as seeking lender consent she will need gas safety cert if gas appliances at the property, LL insurances, and she will have reporting to HMRC obligations, statutory repairing obligations, obligations on any furnishings meeting the relevant fire safety regs etc. Any tenancy agreement needs to make it clear whether T or LL is to be reponsible for utility bills, C Tax etc.

Some manage to let successfully to friends and family but it is so important to have all the correct paperwork in place.

Note that the Lender may refuse CTL if there is too little equity in the property and the rental income does not equate to 125% of the mortgage payments.

Yorkie1

As others have said, you will become a LL with all the attendant duties and responsibilities.

Have a look at this post.

poppysarah

There are few quicker ways to fall out with family.