Wanting to rent property to in-laws

mrobbo76

Hi there,

I am looking for a few pointers and some advice on our property that we wish to rent out in the next year.

Cutting a long story short, my wife and I are wanting to purchase a new house next year. Rather than sell our current house, we want to rent it out to my wife's parents. All we are wanting is for the incoming rent to cover the mortgage on this property, no more, no less, zero gross profit. We do not want to pay any tax on the incoming rent we will receive each month.

So this where you guys come in! Is wishing to rent out this property and receive tax-free rent from the in-laws doable? What how we go about tackling this situation?

Many thanks in advance, from a novice landlord!

Wings

Relationships can and do go wrong, so I would conduct any understanding/agreement like any other business agreement.

The Tax Man, should he become interested, although unlikely, will want to see the market rent being achieved from the rented property, particuarly if they find out the inlaws are the tenants, unlikely I know but worth considering.

Once you have agreed the rent and any possible deposit with the inlaws and obtained character references for them from your wife (their daughter) LOL, then I would firstly draw up a 6 months Shorthold Tenancy Agreement under the 1989 and 1996 Housing Act. The rental terms on this Tenancy Agreement can be to both parties agreement, ie. No. Pets, Rent paid monthly or weekly, rent exclusive of service charges or inclusive Council Tax, Water Rates etc., same applying for repair costs.

After the above then write out an Inventry, listing furniture and fixtures etc. etc Being a landlord myself because of fire regulations I let all my properties unfurnished. Then if the property has a Gas central heating system or Gas Appliances then you need to obtain a Landlords Gas Safety Certificate through a Corgi registered plumber/engineer.

Then look at both house and contents insurance, informing said insurers that the property is tenented.

Now you need to set a date for the inlaws to move in, that date being entered upon the tenancy agreement, together with your address for service of their rental payments, then if a deposit was agreed/received giving the inlaws a receipt for the same.

The only thing left for you now to do, is to right to all of the service providers to the property informing them of the new tenants/residents names and the date they took up residence.

As for Tax free income, even charging a market rent can return a taxable loss at any financial year, for you can claim against your gross rent any building society interests, cost of repairs, decorations, motoring costs, accountancy costs, and lastly use your wife's tax allowance on any net profit.

silvercar

bottom line is that you can rent your property to who you like for whatever rent you like.

considerations are that any claim for housing benefit could be refused if your relations are renting from relatives.

Also when you apply for a new mortgage, if your rent only just covers your payments on this property, the lender may limit the amount you can borrow on the new place. If you wanted to convert the mortgage on this place (if you have one) to a BTL, the lender will want to see that the rent exceeds the mortgage interest. They may want to see an AST if you have tenants in place.

Always safer to do it on a business footing, even if rellies are involved.

Wings

silvercar wrote:

bottom line is that you can rent your property to who you like for whatever rent you like.

I know of cases where the HMR & C (formerly IR) have taxed the tenant/relation on the difference between the market rent and actual rent being received/paid.

Also the original poster needs to look at the tax implications of renting his property to the inlaws. If at present his wife does not work, none tax payer, then consider a joint partnership where they can use her tax allowance. There is also the future possibilty of Capital Gains Tax issues that may arise, so again the right planning advice may/will save tax.

clutton_2

some lenders will not be happy if you rent to members of your family - read the small print of your mortgage offer

scottishlizzie

Does anyone know where I can get a free draft of a shorthold tenancy agreement?

Wings

scottishlizzie wrote:

Does anyone know where I can get a free draft of a shorthold tenancy agreement?

From me if you want me to send you one