renting to a relative

marf14

Hello,

I am seeking some advice relating to the commercial leasing of a property to a family relative (gran).

What are the rules governing such an activity in the following circumstances?

1. Gran has a mortgage and can no longer afford to pay it - she has no savings and is of pensionable age.
2. She offers to sell her grandson it at the amount she is currently mortgaged for (to make zero profit) . The house is an ex council house which she purchased 3 years ago therefore allowing it to now be sold on (the value of the property far outweighs the purchase price offered to her grandson - 20% of the actual value).
3. Grandson want to allow gran to keep living in the house after the transaction and therefore decides to set up a commercial let to gran.
4. Gran qualifies for benefits and therefore can pay the sum agreed by the letting officer to grandson for the let through housing benefits and has her council tax paid also.

I have checked out info on this online and can only see legal restrictions when the let is

1. Not commercial or
2. The landlord is close relative who resides in the same property.

I have also seen some suggestions that if the lettee (gran) was the actual owner of the property in the last five years then she would not be applicable for benefits - however this seems to lack any real backing or reasoning and does to appear substantiated in the housing benefit act (Scotland).

Additionally I am keen to understand how this situation may be arranged to protect against any future dips into the property capital by the council for fees relating to potential care in years to come . Are the council still entitled to it as part of grans estate even though she no longer owns it?? Can this be protected against?

Any opinions would be greatly appreciated

Regards

Marf

hearts

No chance of Housing benefit. She is by making herself homeless without cash, contrevening the rules.

sarahlouise210

You are being offered a long term investment for only 20% of the market cost - could you not just let your gran live there rent free for the rest of her life ??? That is what I would do ........

real1314

I'm fairly certain that selling the house for 20% of it's value would be deemed deprivation of capital.

It would also set up a huge capital gains loss for the grandson:

Let's say it's worth £100k. He pays £20k

In 5 years it's risen to £125k. He sells.

£95k profit, at 40% Capital gains Tax = £38k to pay.

marf14

In response to SarahLouise ,

I do aim to let her live rent free it has always been the intention and have paid the mortgage for her for the last three years. the probelm is that in letting her rent free you haveto take out a "life rent" which then means mortgage companies wont go near you with a barge pole.

In additon in relation to the comments relating to captial gains tax. Capital gains would only be due on the difference in the future between the value at the time of purchase and sale - ie if its currently valued at 100k and sells at 120k in two years time then te grandson would only pay tax on 20k not 100k!!

Thanks for your comments guys.

I am interested in the deprivation on capital comments , my lawyer has said he does not believe that this can count against benefits claims??

Cheers

Marf

:T

hearts

I think you may be wrong with regard to your capital gains assumption. The clue might be in the name.

"I am interested in the deprivation on capital comments , my lawyer has said he does not believe that this can count against benefits claims??"

Im pretty certain it does but you could always phone them up and ask.
She may be entitled to Mortgage interest relief at present.

real1314

1. "I do aim to let her live rent free" ?? So you WON'T be asking for HB and CTB then?

2. Capital gains will be due on the difference between what was PAID at the time of purchase, and what it is eventually sold for.

3. Deprivation of Capital will apply. You need a lawyer who knows what they are talking about. Giving away a property and then expecting to get rent for living there is a complete abuse of HB.

marf14

My accountant and lawyer both informed me of the capital gains situation.

Thanks for your input

Marf

hearts

Your accountant will be in jail soon I suspect ;-)

CAPITAL GAIN........Take notice of the second word. ;-)