Buying a house for student son, what is the best way to do it?

teachergirl

Hello everyone. I have had such useful help on these forums in the past I am trying again. Here is my problem. My son is at university, in his first year studying medicine, which means he will be around his university for another 6 years after this one. They leave halls after this year. In the area he is studying a three bedroom house would cost about £120000. We currently have a £100000 mortgage facility against our own house which has 7 years left to run(and could probably be extended if need be.) My husband is going to get £30000 redundancy money at Christmas and already has a new job to go to in January. We are thinking that maybe buying a property for him to share with two other medics would be a good thing to do, not so much as an investment but to save money. We currently give him £190 a week which covers his accomodation and living costs. He has a loan for the tuition fees.

My major questions are...what are the tax implications? We also have a daughter who will hopefully go to University in two and a half years time. We would not be able to afford to do the same for her so how can we make sure we are "fair" to her. We would like to be able to pay her living costs as well:eek: She is likely only to study for 3 or 4 years.

I hope there is someone who can help, are there any books that anyone could recommend? Thank you in advance:)

anselld

If you buy it, allow son to live rent free instead of funding accommodation.
Give daughter free accommodation so both have had same benefit.
Remaining income will be taxed as your income.
Expenses must allow for personal use, ie if son shares with two others then only 2/3 of expenses can be deducted.
Read the other threads on here on responsibilities of becoming a LL.

There are possible tax advantages of son actually owning house but you cant then do same for daughter and in any case son probably has enough to think about without the responsibilities of being home owner and LL at this stage.

Books ...
Successful Property Letting - David Lawrenson
How to Avoid Property Tax - Carl Bayley
The Landlord's Guide to Student Letting - Catherine Bancroft-Rimmer

pleasedelete

Does he want it? It's a hassle being a student landlord. Is the house in the right area? 3 is an awful number-would he rather be in a larger house as a Tenant? Does he only have 2 friends he wants to live with? At this stage he won't know as it is only weeks in.

Have you asked him what he wants? It really is a hassle as you are the one who has to sort everything from gas bills to leaky pipes as you are the landlord. Are all rooms ensuite? Are they in student accommodation? Etc etc

I was a student landlord. It was a time of boom- I made a lot of money. It was a lot of hassle and I missed out on a lot because it was a house for 3 (friends lived in 8s) but right in heart of student land. I had to decorate, mend stuff etc finding tenants is a hassle as friendships are fickle or some drop out etc

Now is not a time of boom. You probably won't make money. Has he got the time to manage it all?

My daughter goes to uni next year. We could afford to buy her a house but we won't be doing it.

If you own the house without a mortgage (not sure if you are proposing to remortgage yours) there will be tax implications.

Have you worked out how much you will be paying or his rent next year? £190 is ok for halls (does he get any meals?) but what is weekly rent as that is all you will be saving. You will still have to pay to feed and entertain him and utilities etc

How much a week is the rent for a student room in a house?

Kynthia

You will need to decide whether your son and his two friends are joint tenants, which means they are all responsible for the whoel property, rent and utilities. Or you can let the rooms individually which means each tenant is only responsible for their rent and their room, which may be easier if the people living in the other two rooms change with any frequency. This means you are responsible for the communal areas and could choose not to charge your son rent. Both of these options mean you need to declare the income for tax. Also both mean that tenants have rights and you would need to follow proper eviction procedures should you want any of them out.

The other option is for you to let the property to just your son, perhaps rent free which menas you wouldn't have any property income to declare to the HMRC. Then your son could take in lodgers, which means he is their landlord. He would need to declare the income to the HMRC but he can deduct more of the household expenses from the liability. As they are lodgers they would have less rights than tenants which may be easier if things didn't work out and he wanted one of them to leave.

You would need to consider capital gains tax once you sold the property, but you have an annual allowance and can deduct buying and selling costs along with any capital works you do. Therefore unless property prices increase significantly it should be significant.

teachergirl

Hello everybody, thank you for your replies so far.
Anselld, yes we would allow our son to live rent free, as, as we pay his rent now it would be like paying ourselves. We were wondering about putting the house into my son and daughters name jointly ,so that even though she would not live there IF there was any profit at the end she would get half. Thank you for the book suggestions.
pleasedelete, yes we know he would have to want it and at the moment we are only making tentative enquiries. The houses are all in the right area and yes I know it is a small number but they are medical students and they have to both work and play hard so I am not so sure a big student house would be best for him anyway. Student rent is about £100 a week in the area. So we were thinking of charging his friends this and half for the holidays. (Medical terms are 44 weeks long so longer than average anyway.) I would consider getting a management company to sort decorating/mending etc. We are not in it to make money really but to save ourselves some money. If we got £800 a month in income, the mortgage would be about £300, which would leave us £500 to go towards upkeep of the house, insurance and go towards paying his food.
Kynthia, I know we would have to draw up proper contracts for the other tenants as I got my fingers burned once before when I became an "accidental landlord" 20 + years ago when I got married and "let" my flat to two friends without a contract:mad: It wasn't good. The things you have mentioned are exactly the sort of thing I need to think about.
Thank you everyone:D

Mojisola

teachergirl wrote: »

We were wondering about putting the house into my son and daughters name jointly ,so that even though she would not live there IF there was any profit at the end she would get half.

If the house goes into their names, then they will have to declare earnings for tax. If your daughter part owns a house that she doesn't live in, it will affect any future claims for means tested benefits. At the moment her plans are obviously uni and working but what if she has health problems or an accident or is unemployed after uni?

teachergirl

The earnings though are not going to be that significant are they? under the rent a room scheme you cna have £4250(?) tax free and then there is their personal tax allowance. As neither of my children are working then surely the "income " will be swallowed up in this

anselld

teachergirl wrote: »

The earnings though are not going to be that significant are they? under the rent a room scheme you cna have £4250(?) tax free and then there is their personal tax allowance. As neither of my children are working then surely the "income " will be swallowed up in this

Rent a Room would only apply to the person living there, so if income shared between son (living there) and daughter (not) then only son could claim RAR. On the other hand daughter would still have personal allowance.

Fire_Fox

It's worth running an advanced search, these issues have come up many times before. You will likely have to remortgage your family home, few lenders will allow you to let to family. If you spend the redundancy money on a property and gift this to your children you will be unlikely to be able to claim any means tested benefits as this will be seen as 'deprivation of assets'. Remember your husband can be 'let go' from his new job any time within the first year for no reason. Gifting your children this asset also affects their ability to access any means tested benefits or grants in the future. Whoever is named on the deeds must be named on (and liable for) any mortgage on it, and any absentee landlord must register for income tax on the rent.

Contracts are the least of your worries, there are reams of legislation a landlord must comply with from gas safety certificates to lodging damage deposits to registering with the council as an HMO (depends on number of unrelated people living in property). If you intend your children to be the legal owners by all means support in their landlording but you should not interfere or take over. The other tenants must be clear who their landlord is legally - the owners - and what sort of tenancy they have. You would also need to consider things like data protection, if you did credit checks or asked for guarantors (very wise) the landlord cannot randomly disclose this information to their parent or their child.

Consider carefully getting a managing agent, they charge through the nose for the privilege of organising repairs, then use their own tradesmen who overcharge or do shonky work. Many have limited knowledge of or little regard for the law.

Agree that three is not a pleasant number to live in a shared house, it tends to end up with two bonding and one left out, four or five is much nicer and cheaper on bills. Since you don't need to make a huge profit you might ensure there is more living space/ the students are more 'spread out' than normal, and ensure you buy a place with decent sound insulation so they can easily isolate themselves at exam time.

teachergirl

Hello firefox. Thank you for your reply. I don't need to get a mortgage as I have an "offset mortgage facility" on my family home which has 7 years to run. My husband has a new job from January which although not as well paid will hopefully be less stressful. It is the education sphere and so relatively secure (though I recognise this is not always so.) Neither of my children are entitled to any benefits or grants unfortunately due to our salaries, which are comfortable but not high. Which is really the reason for us wondering if this would be a good idea.
We could not really afford a bigger property as then we would need to borrow more money . So is it still a good idea:question:

anselld

teachergirl wrote: »

So is it still a good idea:question:

Nobody can really determine that except yourselves.

Do the research, decide if you want to have the hassle/responsibility. Discuss with the offspring. Research the student rental market where your son is (not all university towns have strong demand, some are already well/over supplied).

If you still want to do it after all that then yes, it is a good idea (for you).