Renting From Family

Gemberi

Hi,


I am planning on moving in to a house currently owned by my father - he owns it outright and does not have a mortgage on it as he inherited it from an elderly relative. He currently lives in a different house and has a mortgage on that, which he will continue to live in.


We will pay him cheap rent to live in the house but as my father has a reasonably high income, he is concerned that the rent we give him will move him into a higher tax bracket and that then it's really not worth doing in the first place.


Is he required to declare the income from me, even though I'm his direct family? I've found a page on the HMRC website that I mentions 'lower than market value rent' will be excluded from tax deductions - but how much lower than market rent does it have to be? E.g. market rental value £800 per month, I pay £650 per month - is this ok? He's not doing it to make a profit but to just save the money for a rainy day.


Does anyone have any advice? The HMRC website has so many technical terms that it's hard to understand!


Thanks in advance.

BigAunty

Please provide the link to the 'lower than market value rent' guidance. Your relationship does not create an exclusion with any tax obligations.

AFAIK, all landlords have to submit tax returns,(perhaps excluding those with live in lodgers whose rent is below the Rent A Room scheme limits).

He will be able to deduct things like a percentage for wear and tear, repairs and other direct costs relating to letting.

He could also be liable to Capital Gains tax when the property is sold in the future.

http://www.landlordzone.co.uk/content/taxation-of-property-income

http://www.landlordzone.co.uk/content/capital-gains-tax-on-property

Katekoom

Eeek, that sounds confusing. I don't know about the ins and outs of HMRC, but how about you invest the money on behalf of your dad. Then when the time is right, give him half of the interest gained and his rent money.

Yorkie1

Is the property currently rented out?

If not, does your father realise that he will become a landlord, with all the legal responsibilities that come with that.

e.g. gas safety certificate.

This post shows what he's getting into if he doesn't have any experience
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Kynthia

As far as I'm aware the fact you are family and paying lower than market rate rent makes no difference regarding the obligation to declare income. The difference it does make is that he couldn't declare a loss if the allowable expenses were higher than your rent, as that loss isn't real but is caused by the fact he's charging below the market rate.

If he doesn't have a mortgage on the property then it's unlikely he has much in allowable expenses. Perhaps he should take advice from an accountant as it might make more sense for him to remortgage the rental property and pay off the mortgage on his home. That way the mortgage interest on the BTL mortgage will reduce the taxable profit (possibly to nothing if your rent is low compared to the mortgage interest and other allowable expenses) and he'll still only be paying for one mortgage.

xylophone

He's not doing it to make a profit but to just save the money for a rainy day.

move him into a higher tax bracket

Perhaps he could make additional contributions to his pension http://www.thisismoney.co.uk/money/news/article-2119279/Tricks-avoid-slipping-40-higher-rate-tax-bracket--50k-child-benefit-trap.html