Buying house (no mgage) 'renting' to son questions

onceuponatime_2

nictry wrote: »

I need some advice, am considering buying a second property (no mortgage) and then allowing my son to live in the property, he would pay 'rent' to us at a nominal level but would not plan to make this official as a rental as essentially it would be transferring his housekeeping at home to payments made whilst he 'house sits' for us

I realise that this may be seen as questionable but principally I am concerned about the legality/taxable implications as you might expect, also whether there are any obvious pitfalls of purchasing the property for cash and ultimately when I come to sell (retirement ~20 years) would I then be liable for anything other than CGT on the profit?

As above, property and all bills would be in my name. Are there any other concerns/issue I should be considering before deciding to progress this idea further

Thanks for any advice as really not sure about the pros/cons of this idea

I have to say i'm glad you posted this question because i know someone that is trying to do the very same thing as you. Reading the comments so far it fills me with fear let alone someone actully trying to doing it. Everything that is going on at the moment you would of thought that us working class would get some kind of break to get the economey moving again. But as always theres strings attached.

pmlindyloo

Well, I am going to go against the concensus and say that I think this is a great idea!

If you have enough money sitting in a savings account earning very little interest then why not buy a second property and at the same time help your offspring save some money to eventually buy his own place.


I cannot see that this is any different to having adult kids at home and subsidising them while they save for a place of their own.


In fact the more I think about it the more I like the idea.


Adult kids living at home can be a pain in the #### I am sure the OP will make sure that reasonable efforts are made to contribute to the bills.


If I had the money I would be helping my kids out in this way. No point in keeping the money in pitiful savings accounts when you can help out your kids.

onceuponatime_2

[QUOTE=pmlindyloo;56825031
If I had the money I would be helping my kids out in this way. No point in keeping the money in pitiful savings accounts when you can help out your kids.[/QUOTE]

The banks need feeding and they are very very hungry at the moment! So all hurdels that are put in the way serve only one purpose.

nictry

joerugby wrote: »

If you want the income to be your wife's (for HMRC purposes) then presumably you are happy for her also to own the house?

Of course and why wouldn't I be? Not that this should matter if the house was purchased in joint names or am I missing something?

nictry

angelbob wrote: »

You are not helping your son become self sufficient if you are going to buy him a house and only charge him 'keep'.
By all means buy another house BUT rent to your son at a normal rate and have the bills in his name, he needs to learn to stand on his own to feet OR stay at home.

But the whole point of doing it this way is that he does have the opportunity to save for his own place because I am looking to only cover the value if interest being lost on the 'investment' I am making, if I leave it in the bank I can make ~2-3% so if by charging him the same he can also put money away each month towards his own deposit but also live in his own 'space' then why is this not giving him the opportunity to stand on his own two feet? He will take responsibility for covering the bills (in his name or mine) and learn about living on his own etc.

nictry

pmlindyloo wrote: »

Well, I am going to go against the concensus and say that I think this is a great idea!

If you have enough money sitting in a savings account earning very little interest then why not buy a second property and at the same time help your offspring save some money to eventually buy his own place.


I cannot see that this is any different to having adult kids at home and subsidising them while they save for a place of their own.


In fact the more I think about it the more I like the idea.


Adult kids living at home can be a pain in the #### I am sure the OP will make sure that reasonable efforts are made to contribute to the bills.


If I had the money I would be helping my kids out in this way. No point in keeping the money in pitiful savings accounts when you can help out your kids.

Thank you, I really don't understand the absolute negativity being shown on this board to my question

If I am able to help my son live on his own and cover his 'rent' at an economical level, contribute to the bills whilst still being able to save for his future why wouldn't I want to?

I bought my 1st house at 19 and fortunately I was able to obtain a mortgage (a high multiple at the time) and after nearly 25 years am fortunate enough to be able to purchase another property and rather than buy into an already saturated and 'greedy' rental market I am trying to provide a youngster the chance to live independently without sponging from the state, continuing to work hard as he has done since leaving college and in some years time hopefully have the opportunity to either purchase this house or to save for something himself within his affordability levels (as currently 15-16k doesn't give you much chance to buy with a sensible mortgage multiplier!!!)

My issue, and reason for posting originally was to essentially find out whether, despite paying my taxes, paying a mortgage and saving etc. for 25 years I would be able to avoid paying even more tax on a minimal amount of money from my own child paying me 'keep' but living in his own space.

This is something I still do not feel is an unreasonable question and clearly the answers given (by those not either bitter and/or ignorant) show that the government still wishes to squeeze every last penny out of a decent hard working taxpayer, perhaps my response to those questioning my motives also think children staying at home till their mid 30's but paying some form of housekeeping to their parents should also ensure they declare this on their self assessment so they can be taxed accordingly, or is that as plain stupid as it sounds!

pmlindyloo

nictry wrote: »

Of course and why wouldn't I be? Not that this should matter if the house was purchased in joint names or am I missing something?

I am by no means an expert on these matters but I think that if you owned the house in joint names then your tax liability would be split 50/50.


I also believe that there is a way around this. It might be best to ask an accountant about this.

00ec25

nictry wrote: »

Of course and why wouldn't I be? Not that this should matter if the house was purchased in joint names or am I missing something?

possibly... are you aware that under tax law married couples must split the rental income exactly according to the actual ownership portions , therefore joint means joint ie 50/50. If you go tenants in common then the income split is exactly in whatever your proportion is - this is why you were warned in #10 to ensure she owns it 100% if you want it all taxed against her only

at the end of the day you cannot receive any form of income against a second property you own and not have to declare it for income tax. Of course this makes you a LL so you can offset the rent aganst all the expenses that you will be required to meet as a LL abiding by the law - see GM's posr #4 and therefore your net taxable income may be very low or nil so you actually may not end up paying tax but declare the it you must.

Your son is not living in your household, he is in his own household therefore it is no longer a tax free contribution to your housekeeping - instead you are getting taxable rent from a rental property - plain and simple

Annisele

If you do this, you'll want to get some proper paid-for advice from a solicitor about how to protect the interests of everybody involved.

Given your response to Fire Fox I'm a little reluctant to post this...but, broadly, it's usually a good idea to think about what would happen if some calamity happened to one or more of the people involved. Death, divorce, debt, disease, and stuff like redundancy. What would you want to happen to the place if you died? Or if your son died? Or if you and your wife got divorced? Or if your son gets married and then gets divorced? What if you are declared bankrupt? What if you lose your job, can't afford your own outgoings, and need access to your capital?

It's also worth thinking about what you'd do if various things happened to house prices. Say house prices halved, and your son chose that moment to decide he wanted to emigrate to Australia - what would you do with the house then?

What if interest rates rocket and rents plummet - would it still be fair to charge your son the amount of interest you're missing out on, or would it be fairer to charge him a market rent? What if the two of you disagree on what would be fair?

I'm not for a moment suggesting that any or all of those things are going to happen, but if you do go ahead it's worth thinking about what you'd do if they did.

Do you have any other children, and can you afford to do the same thing for them?

As to tax, if you want the rental income to be your wife's then the house has to be in her name.

If you want the whole affair to be cost neutral for you, you're going to have to charge your son more than the amount you're losing in interest. As an existing homeowner you know they don't maintain themselves - but as a landlord, you'd be responsible for maintaining the fabric of the building.

nictry

Please do not feel my response to fire fox reflects my desire to hear others opinions, I still feel his tone and content of his post was poor and seeing some of his other posts attract the same views I do not feel I was unreasonable in my response to him.

Anyway, I do not disagree with anything at all you have said and agree seeking legal advice is without doubt a good idea, I guess when thinking ideas through it is always easy to see the 'best' outcome and particularly when talking about your own flesh and blood, and yes with other children I do ask myself the same question on how to manage the situation again!

Re the tax/income issue, I am not too worried as the minimal amounts involved would not overly concern me but again my question was more a basic one of 20x50% tax again on what feels to be more of a 'interest/housekeeping' payment than a commercial rental situation (whether seen that way by HMRC or not)

Annisele wrote: »

If you do this, you'll want to get some proper paid-for advice from a solicitor about how to protect the interests of everybody involved.

Given your response to Fire Fox I'm a little reluctant to post this...but, broadly, it's usually a good idea to think about what would happen if some calamity happened to one or more of the people involved. Death, divorce, debt, disease, and stuff like redundancy. What would you want to happen to the place if you died? Or if your son died? Or if you and your wife got divorced? Or if your son gets married and then gets divorced? What if you are declared bankrupt? What if you lose your job, can't afford your own outgoings, and need access to your capital?

It's also worth thinking about what you'd do if various things happened to house prices. Say house prices halved, and your son chose that moment to decide he wanted to emigrate to Australia - what would you do with the house then?

What if interest rates rocket and rents plummet - would it still be fair to charge your son the amount of interest you're missing out on, or would it be fairer to charge him a market rent? What if the two of you disagree on what would be fair?

I'm not for a moment suggesting that any or all of those things are going to happen, but if you do go ahead it's worth thinking about what you'd do if they did.

Do you have any other children, and can you afford to do the same thing for them?

As to tax, if you want the rental income to be your wife's then the house has to be in her name.

If you want the whole affair to be cost neutral for you, you're going to have to charge your son more than the amount you're losing in interest. As an existing homeowner you know they don't maintain themselves - but as a landlord, you'd be responsible for maintaining the fabric of the building.