Self Assessment on Rent Free Property

Smudge321

I have a second home which I let a family member stay in 'rent free'.

I do not make any income on this property but my issue arises as although he gives me money for his utilities, council tax etc, I pay for ALL the bills etc.

I have hit a problem when completing my first SA and upon asking advice from HMRC I was told I couldn't claim for gas/electric/council tax etc..and as such I am now faced with paying tax on a 'profit' I do not have

I hope I am explaining this ok. For example, the tenant gives me money every week to cover the following, which I pay through my own bank.........

Gas (bill in his name/address)
Electric (bill in his name/address)
Council Tax (bill in his name/address)
Boiler maintenance (bill in my name/ but his address)
TV licence (bill in his name/address)
Cable TV (bill in my name/ but his address)
House Insurance (bill in my name/but his address)
Building Insurance (bill in my name/ but his address)

I don't charge extra or make any money but HMRC are saying I can only claim for the Insurance and the Boiler, therefore leaving me to get taxed on the money I receive to pay these other bills.

A quick search on the net takes me to other sites which state I can deduct utilities and council tax from my 'income' although HMRC have told me otherwise.

Any help and advice?

Fire_Fox

Welcome! Why are all the bills in your name? This is completely unnecessary and is what is causing much of the problem. The tenant is liable for energy, council tax, water, TV license, cable TV, insuring his own possessions - have them pay their own bills in their own name instead of you receiving income. If they have some kind of health reason for not paying their own bills get Power of Attorney.

As landlord you are liable for the gas safety certificate, all maintenance including the boiler, the buildings insurance, landlord's insurance for your contents. Have you actually told the insurers that you don't live there? Do you have a mortgage and if so do you have consent to lease?

Smudge321

Thanks for the welcome and reply

I have never lived in the property. Previous 'tenant' was another relative who had a liferent??? and all bills etc were in his name - I basically just owned the house.

When he passed away, the property was vacant for a while and as such I had all the utilities etc put into my name.

The new 'tenant' does not have a bank account which is why all the payments are made from my bank account with him paying me to cover these expenses. (His wages go into a basic bank account only set up for his salary)

I've went from helping out a family member with a 'free' house to causing myself problems

So....is my only solution to make sure all the bills are in his name and to have nothing to do with paying them?

Thanks

Werdnal

Smudge321 wrote: »

Thanks for the welcome and reply

I have never lived in the property. Previous 'tenant' was another relative who had a liferent??? and all bills etc were in his name - I basically just owned the house.

When he passed away, the property was vacant for a while and as such I had all the utilities etc put into my name.

The new 'tenant' does not have a bank account which is why all the payments are made from my bank account with him paying me to cover these expenses. (His wages go into a basic bank account only set up for his salary)

I've went from helping out a family member with a 'free' house to causing myself problems

So....is my only solution to make sure all the bills are in his name and to have nothing to do with paying them?

Thanks

He doesn't need a bank account to pay utility bills. If he has the cash to pay you, he can pay them himself via Post Office, paypoints in various high street shops, by cheque in the post, by cash over the counter. If he wants to spread the cost he can pay monthly for most things too. No reason at all why the bills should still be in your name and not his.

I note 2 of the bills you mention are your insurance - do they know you don't live there? If not, your policies will likely be void if you ever had to claim.

Smudge321

Werdnal wrote: »

He doesn't need a bank account to pay utility bills. If he has the cash to pay you, he can pay them himself via Post Office, paypoints in various high street shops, by cheque in the post, by cash over the counter. If he wants to spread the cost he can pay monthly for most things too. No reason at all why the bills should still be in your name and not his.

I note 2 of the bills you mention are your insurance - do they know you don't live there? If not, your policies will likely be void if you ever had to claim.

Noted about paying the utilities, thanks I think the first thing I need to do is obviously stop paying his bills and make sure everything like that is in his name.

Re the insurance - yes the insurance know I do not live there. I did ask about landlord insurance but they were happy to insure as normal since it was a family member but yes they are aware its only my house and I do not live there.

Notmyrealname

You could only get away with claiming the utility bills if there was a tenancy agreement stating that it was all inclusive and even then ONLY IF THEY ARE IN YOUR NAME which they aren't.

If there isn't and they're in his name, then you can only claim insurance and boiler etc.

Any monies he pays you is taxable income. The fact that you make no profit from it because you pay bills which are in his name is irrelevant. For LLs who have a mortgage, only the interest on the payments is tax deductible and even if the rent is less than the repayment, anything above the monthly mortgage interest is classed as profit. The only time you'd pay no tax on it is if as I said earlier it was an all inclusive tenancy and the bills were in your name and then they'd become tax deductible expenses and then you'd not pay any tax on what he gave you.

Sorry but HMRC are correct in this case and you owe the tax.

Smudge321

Notmyrealname wrote: »

You could only get away with claiming the utility bills if there was a tenancy agreement stating that it was all inclusive and even then ONLY IF THEY ARE IN YOUR NAME which they aren't.

If there isn't and they're in his name, then you can only claim insurance and boiler etc.

Any monies he pays you is taxable income. The fact that you make no profit from it because you pay bills which are in his name is irrelevant. For LLs who have a mortgage, only the interest on the payments is tax deductible and even if the rent is less than the repayment, anything above the monthly mortgage interest is classed as profit. The only time you'd pay no tax on it is if as I said earlier it was an all inclusive tenancy and the bills were in your name and then they'd become tax deductible expenses and then you'd not pay any tax on what he gave you.

Sorry but HMRC are correct in this case and you owe the tax.

OK I'm making this worse with every minute that passes

I checked online and the gas/electric and boiler bills are all still in my name but at his address.

So....that helps me as they are in my name yes?

BUT - I dont have a tenancy agreement with him. He is family, I trust him and have no reason not to or to worry that I won't get rent like a normal landlord. He pays his own bills and that's all I ever asked of him. He will stay in the house for as long as he wants/needs.

Smudge321

Notmyrealname wrote: »

Sorry but HMRC are correct in this case and you owe the tax.

I appreciate this - I'm just trying to rectify my mistakes as soon as I can to reduce next years tax bill

Fire_Fox

Notmyrealname wrote: »

You could only get away with claiming the utility bills if there was a tenancy agreement stating that it was all inclusive and even then ONLY IF THEY ARE IN YOUR NAME which they aren't.

If there isn't and they're in his name, then you can only claim insurance and boiler etc.

Any monies he pays you is taxable income. The fact that you make no profit from it because you pay bills which are in his name is irrelevant. For LLs who have a mortgage, only the interest on the payments is tax deductible and even if the rent is less than the repayment, anything above the monthly mortgage interest is classed as profit. The only time you'd pay no tax on it is if as I said earlier it was an all inclusive tenancy and the bills were in your name and then they'd become tax deductible expenses and then you'd not pay any tax on what he gave you.

Sorry but HMRC are correct in this case and you owe the tax.

Smudge321 wrote: »

OK I'm making this worse with every minute that passes

I checked online and the gas/electric and boiler bills are all still in my name but at his address.

So....that helps me as they are in my name yes?

BUT - I dont have a tenancy agreement with him. He is family, I trust him and have no reason not to or to worry that I won't get rent like a normal landlord. He pays his own bills and that's all I ever asked of him. He will stay in the house for as long as he wants/needs.

You do have a tenancy agreement you just don't have a paper one in which case you cannot claim this tax year. You are a landlord they are a tenant, you would have to serve them notice to quit if you wanted them to leave, you are bound by much legislation. Everything here is the same as a regular tenancy except the rent is £0. It's a dangerous path to think of this as doing a relative a favour.

You cannot charge a tenant for maintaining your boiler, as landlord you have a repairing obligation. If you don't want to pay for the insurance and boiler out of your £0 rent, set up an AST and charge rent - this might happen to be the same amount as these costs. Do you have a landlord's gas safety certificate?

The paper AST is not about whether you trust you relative, it's about you being able to prove to the Inland Revenue what you have coming in, why and what your costs are. You can do things on trust but you can't expect the IR to do the same.

Smudge321

Fire_Fox wrote: »

You do have a tenancy agreement you just don't have a paper one in which case you cannot claim this tax year. You are a landlord they are a tenant, you would have to serve them notice to quit if you wanted them to leave, you are bound by much legislation. Everything here is the same as a regular tenancy except the rent is £0. It's a dangerous path to think of this as doing a relative a favour.

You cannot charge a tenant for maintaining your boiler, as landlord you have a repairing obligation. If you don't want to pay for the insurance and boiler out of your £0 rent, set up an AST and charge rent - this might happen to be the same amount as these costs. Do you have a landlord's gas safety certificate?

Re the boiler payments - I can make them deductable on my SA though?

I have a gas safety certificate for the boiler which is serviced and maintained annually and the carbon mon detector - is a landlord certificate different?

:(:(

Smudge321

Fire_Fox wrote: »

The paper AST is not about whether you trust you relative, it's about you being able to prove to the Inland Revenue what you have coming in, why and what your costs are. You can do things on trust but you can't expect the IR to do the same.

Thanks for all your advice

I didn't expect all this to be a simple process but I didn't appreciate it could be so complicated - or at least I could make it more complicated than it need be

I would rather keep the bills and payments as they are set up direct debit and especially with the gas/electric, there is an incentive to pay/manage these online.

If I keep in my name and set up an AST, I can offset these bills against the monies I receive to pay them and call these monies rent?


I appreciate you guys are probably fed up explaining all this to newbies but I do thank you for your help and advice