Renting off Grandparent

Moneyme_2

So my Grandparent is buying a flat as a second property. They have said I can rent it off them for a reduced amount. When they do pass away, the flat will be left to me with money to cover capital gains etc.

Is this ok? Are there any legal complications or tax complications?

HappyMJ

They may live a long time. Legal problems...no as long as they act like a landlord. tax..no problem if they declare the income and pay tax on it.

Moneyme_2

Thanks for reply! So even if they rent it to me cheaper than the market value for renting will there still be complications?!

somethingcorporate

No, assuming they own it outright.

If they mortgage it there may be a restriction that it cannot be let to a family member, probably best to use a broker if this is the case to avoid this complication upfront.

InMyDreams

Moneyme wrote: »

Thanks for reply! So even if they rent it to me cheaper than the market value for renting will there still be complications?!

I think charging less than market value rent is only complicated when a person gives their property away, but actually then continues to live in it. So you can't give your home to your children 'early' as it were if you still need to live in it yourself (or use it to fund future care).

As I understand it, there won't be any capital gains if you inherit it, but obviously it will be included in inheritance tax calculations.

Just thinking aloud here, but...

What sort of reduced rent are we actually talking? If this home is simply an additional property for your grandmother, and she has a home and provision for her future such that she won't need state assistance, and it is actually her wish to provide you with a home both now and after she is gone, it might be more efficient if she just gives it to you now, at some agreed figure which doesn't have to bare any resemblance to market value. Whilst whatever discount from market value she gives you will still be subject to inheritance tax for the next 7 years, taper relief would kick in after 3.

I don't see you have anything to lose. Clearly your grandmother does though, because should she need those funds in the future, she couldn't evict you or put the rent up. You/she also run the risk of you losing the house should anything untoward happen to you in the future, such us bankruptcy or relationship breakup. She/you might not want to risk that in her lifetime.

There's not enough in your post to know whether this is a totally inappropriate suggestion (in which case, apologies) or whether it's something worth considering.

Werdnal

Your grandparents would become landlords, with all the legal obligations and tax implications that entails.

They would have to declare the rent you pay them to HMRC, even if it is below the "going rate" and even if they do not receive enough to pay any tax, it may affect any benefits they receive.

They have to arrange an annual gas safety certificate if there is any gas supply to the property, and ensure that any furniture they supply you is up to current fire safety regs, and all appliances and electrical installations are safe for you to use.

Obviously, I doubt you would sue your "landlords" for any lack of repairs and maintenance!

There is a good newbie landlord thread here:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

and whilst you may think a lot of it wouldn't apply to your "family" arrangement, it will be best for all concerned if you abide by the rules, and draw up a proper written tenancy agreement between you just to ensure everyone knows what is expected of them, and protect you if anything should happen to them.

Also, whilst your grandparents may wish to leave the property to you when they pass on, remember that if they require residential care, the property will be classed as their asset, and could be sold to fund care home fees, so you will have no control over inheriting the it, and may even have it sold out from under you!!!!

Will you be able to meet the rent yourself, or would you need to draw housing benefit? Benefit office are very wary of people renting from family and would scrutinise your application suspecting it to be a "contrived tenancy".

ognum

This property could of course be sold to pay for care fees etc. As far as IHT is concerned it would be better for them to give you the flat and then live for 7 years! Of course there are other issues to consider as well.

Moneyme_2

Thank you all for your help!

Yes my grandparent currently loves in their own house worth around £800,000 and they have savings, so this would just be an additional property which she would like to see me enjoy while she is still around. So the care home bit could be the only issue?

They have previously just sold another second property, so do have capital gains from that, so they therefore want to reinvest, rather than give me the place.

Thanks again for your help so far! :0:cool: