Renting anex in house to Father

homerhotspur

query - Recently widowed 90 year old father comes to live in house with daughter and husband. They have a self -contained area, previously a granny flat, within their house. He will eventually rent out his old house on which tax will be due from him. What is the situation with the income he pays the daughter? I am aware of the 'rent a room scheme' and all its variants. They intend to charge him rent of approx £200 per week which will cover everything , including heating, food etc.

In such a close family arrangement, would this be considered as outside of the scope of tax or will they have to pay tax on the excess over the Rent a Room allowance or net profit after expenses? Thank you

pjclar02

This arrangement would not be outside the scope of tax - the income would be taxable as any other property letting business. They will also need to be particularly careful around private residence relief and lettings relief (and whether these will be/will continue to be fully available once they go down this route).

Fire_Fox

Off topic a bit but why on earth would a 90 year old want the stress of becoming a landlord, why not sell the father's house?

faerie~spangles

homerhotspur wrote: »

query - Recently widowed 90 year old father comes to live in house with daughter and husband. They have a self -contained area, previously a granny flat, within their house. He will eventually rent out his old house on which tax will be due from him. What is the situation with the income he pays the daughter? I am aware of the 'rent a room scheme' and all its variants. They intend to charge him rent of approx £200 per week which will cover everything , including heating, food etc.

In such a close family arrangement, would this be considered as outside of the scope of tax or will they have to pay tax on the excess over the Rent a Room allowance or net profit after expenses? Thank you

If they are going to benefit eventually (inheritance) from the old man, why would they charge him rent?

He could go into a home and pay for his care via the sale of his house surely?

John_Pierpoint

There are three lots of bureaucrats trying to keep an eye on your private arrangements:

The income tax man, who is already getting the tax on the rent, coming in from FiL's own house. His employer is getting deeper in debt each year and so needs every penny.

The council tax man, who is already getting tax on your building, his employer is facing a time bomb of pension liabilities so is desperate to increase revenue. An extra class A property could be useful.

The planning officer - reluctant to hand out possible capital gains to property owners, without "public gain". Is there a statute law definition of a granny flat? Does it just mean a "flat" something with its own kitchen and independent access ( front door)? Some local authorities, including mine, can be very difficult about what they see as subdivision of houses into flats and what the occupants see as multi generational living.
His employer is facing a cut in central government grant, meanwhile the planning department is facing a reduction in demand for its services. Time for a bit of job and pension justification?

Personally I would keep any contribution from FiL within the rent a room limit, trust that his presence does not upset any neighbours and hope that FiL feels generous when it come to helping with household expenses. .

Peanuckle

Wouldn't it be easier to not charge rent but instead the Father pays towards the groceries or gives them "pocket money" each week? Surely, unless you're planning to evict him if he doesn't pay the rent, a formal tenancy isn't required?

aeb_2

Would the part of the rent which covers food be included in the rent a room scheme. Just asking as I have no idea. If not and this arrangement is to be looked at by tax office couldn't you have one direct debit for the limit up to rent a room and a seperate one for food and other expences to top up to the £200?

Re being a tenant, not a lodger, I would imagine a 90 year old will eat with the family for the most part, not be fending entirely for himself in the annex. I think it is a lovely arrangement. It's a shame more people don't have time or space to do this.

xylophone

Is there any pressing reason to keep the house- renting it out involves father taking on the responsibilities of a landlord and complicates his tax affairs.
http://www.direct.gov.uk/en/HomeAndCommunity/Privaterenting/RentingOutYourProperty/DG_189124

With regard to the money being provided by father to his daughter, might it not be less complicated and more IHT tax efficient for him to make "regular gifts out of income"? http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

lincroft1710

Occupiers of self contained annexes who are parents of occupiers of main house and aged over 65 are exempt from paying Council Tax on the annexe (Class W)

getmore4less

They have a self -contained area, previously a granny flat, within their house

If this is now part of the house then just move in him and share the space as you want.

He then just contributes to the household bills and gifts with no reservations , £3kpy and from income, no IHT implications.


£200pw seems a bit steep why this high is it trying to reduce his assets?


AS for the other house that needs looking at seperately.

homerhotspur

Thank you for helpful responses. By the way, there are no IHT implications( below threshold). Him becoming a landlord isn't really a factor as family will deal with everything through a lettings agent. As for going into a care home, that is really what everyone is trying to avoid, especially him.