Capital Gains on 2nd rented out home

jimmo

Owen v Elliot was a capital gains case and concerned the Owen family who ran a guesthouse. They lived in an annex during the busy season but lived in the main building in their low season.
http://www.hmrc.gov.uk/manuals/cgmanual/CG64723.htm
Before I retired my attitude was that the law said that if a property was let then lettings relief was available. No question of whether the letting was commercial or not and letting at a peppercorn rent is letting.
I would want to see the lease under which the peppercorn rent was chargeable but I would draw the line at that. I wouldn’t bother looking for evidence of what might just be pennies passing from tenant to landlord each year.
Memory can be a strange thing but I am rather confident that I discussed the issue of peppercorn rents with my colleagues back then and none of us was aware of any restriction of letting relief to commercial lettings only. We would have accepted peppercorn letting as letting and allowed letting relief.
So, http://www.hmrc.gov.uk/manuals/cgmanual/cg64713.htm is news to me but, whilst I think the HMRC logic of citing Owen v Elliot as a justification for saying non-commercial letting is unacceptable is, at least, tenuous we have it in black and white as HMRC policy. That doesn’t say that HMRC policy is right but it does say that if anyone takes them on its going to take an awful lot of money to mount a serious challenge.
Personally, I would look for cheaper options and in this case the first thing that strikes me is that mum and dad more or less moved into the inherited property as soon as it was inherited by the OP.
Was there something in the will of the deceased that gave mum and dad the right to occupy the property so that mum and dad occupied the property as beneficiaries of a will trust?
If not, did the OP’s act of allowing mum and dad to live in the property create a trust, maybe an implied trust.
http://www.hmrc.gov.uk/manuals/cgmanual/CG65415.htm
These, it seems to me, are worth exploring and could result in qualification for main residence relief for the period of mum and dad’s occupation. Not exactly an easy solution but potentially a lot cheaper than taking on HMRC through the courts on the question of whether a peppercorn rental is letting.

goalhanger

When we inherited the property we didn't want to sell the house and so it seemed to make sense to let my parents stay there and at least it wouldn't get wrecked as it could with a normal let.
Phil

goalhanger

So... I could take out a buy-to-let mortgage on 'Dads' house to cover purchase of flat , buy flat , move Dad into it and rent out the house . I could then receive interest relief on the mortgage ?
Phil

goalhanger

And another question.....
if you get an interest only mortgage how much interest relief do you get ?
Ta,