Buying My Parents house To Rent Back To Them

Soot2006

moneycrazy wrote: »

Im probably not making my self clear, the amount they pay us in rent will not be any more then the monthly repayment amount of the mortgage. the money will go in and out of the same account showing no profit or gain.

It is profit though, it's YOUR profit because YOUR house will be gaining more equity as the mortgage is paid down. Mortgage interest can be offset against tax, but not mortgage repayment.

Werdnal

moneycrazy wrote: »

Im probably not making my self clear, the amount they pay us in rent will not be any more then the monthly repayment amount of the mortgage. the money will go in and out of the same account showing no profit or gain.

You will own the property. Your parents will be paying you rent. That rent will be income to you and must be declared. The HMRC will allow certain "expenses" to be deducted when you have rental income, and the remaining amount is your profit which they can tax you on.

The "expenses" they allow are things like agent fees, repair costs etc, but ONLY the interest you pay on any mortgage payments. The REPAYMENT amount is not allowed.

So if as an example the mortgage payments are £400/month, with £300 being repayment/capital and £100 being interest, you can only deduct £100 per month off the rent you receive, and the rest must be declared to the HMRC - well infact ALL of it has to be declared, but the form allows you to enter the full amount recieved, less the allowed expenses, then the resulting profit - it is this that you are assessed for tax against.

Depending on your other earnings, you may have to pay tax on this amount. It will also affect any benefits you receive (tax credits etc) as it must be declared as income along with any other household income, wages etc that you receive.

Have you read the "new landlord's" link in one of the earlier posts by GM? Within it, there is a link to HMRC and this will show you what is involved in making a self-assessment declaration to the HMRC every year. It doesn't make any difference whether you are letting to family, friends or complete strangers - you are receiving a payment for the property you let, and have to declare it!

tabbyfish

Think of it this way, the rent you receive in cash and paid to the mortgage people may not seem like a profit but for that you will receive the value in bricks and mortar which you have to pay the tax on. The interest is the expense and deductible for tax purposes but the Capital is cash for bricks......I prob just complicated it more lol

moneycrazy

ive just seen on the HMRC web site that rental income up to the value of £4250 is classed as non taxable income. so if the capital repayment less interest can to this value we wouldnt have to pay income tax. am i getting this right hmrc.gov.uk/incometax/taxable-income.htm

dktreesea

moneycrazy wrote: »

Im probably not making my self clear, the amount they pay us in rent will not be any more then the monthly repayment amount of the mortgage. the money will go in and out of the same account showing no profit or gain.

In this case, you could have a situation where, say, a couple pay £1200 a month on their mortgage, with a capital portion. So far, not tax implications. They just pay it out of their after tax income.

They now sell to you and pay the same amount in rent. No implications for them; they are paying the same amount as previously.

If it's a capital repayment mortgage you will be getting/taking over to buy the property, this could have tax implications for you. The whole of the rentreceived will be income, so £1,200 a month (for example) but only the interest portion of the repayment will be able to be expensed (e.g. £500 per month), leaving you liable for income tax on the difference (£8,400 per annum), not withstanding that the set of transactions are cash flow neutral.

angelbob

moneycrazy wrote: »

ive just seen on the HMRC web site that rental income up to the value of £4250 is classed as non taxable income. so if the capital repayment less interest can to this value we wouldnt have to pay income tax. am i getting this right hmrc.gov.uk/incometax/taxable-income.htm

How much rent would you charge them a month? that only works out £354 a month, thats not much x

Mojisola

moneycrazy wrote: »

ive just seen on the HMRC web site that rental income up to the value of £4250 is classed as non taxable income. so if the capital repayment less interest can to this value we wouldnt have to pay income tax. am i getting this right hmrc.gov.uk/incometax/taxable-income.htm

Are you looking at the details for the rent-a-room scheme?

System

moneycrazy wrote: »

ive just seen on the HMRC web site that rental income up to the value of £4250 is classed as non taxable income. so if the capital repayment less interest can to this value we wouldnt have to pay income tax. am i getting this right hmrc.gov.uk/incometax/taxable-income.htm

The £4250 limit is for a lodger not for a house rental

Rental income

• From a lodger in your only or family home if more than £4,250 a year (£2,125 if split jointly).
• From a second property.

Werdnal

Have you actually looked into a BTL mortgage, what terms you would be offered etc? How can you decide how much rent would cover the mortgage if you don't know the monthly payments and the capital versus interest split involved?

You have also not ascertained whether you could get a BTL loan and let to family, as it is often prohibited, so this whole plan could be scuppered if they won't lend to you.

Do your parents work, or have an income to cover rent? Are they likely to have to rely on benefits in the near future or if one of them should pass away or no longer be able to work?

angelsmomma

Also if you are in recipt of tax credits/benefits then the rental property will be taken into account when universal credit comes in.