Renting my house to Dad who is going bankrupt

PigletRoo

My parents are looking into renting my house (at market value) from me as my Dad is in all likelihood going to end up having to go bankrupt soon. The house they are currently renting is too expensive for them to be able to afford on just their pension income (which is the only income they will have once Dad loses his job - this is imminent - and ends up having to go bankrupt).

We are wondering to what extent it is likely that a trustee in bankruptcy would attempt to overturn a rental contract between me and my parents, even if it is done at market value, as a transaction at an undervalue or similar? My limited understanding is that they should not be able to get very far with this claim provided that the rent is set at market value on an arm´s length contract but I am not at all sure about this.

I sadly can´t afford to pay the mortgage for them so it would be a genuine transaction. That said, I can just imagine a trustee would look at the set up and assume it to be a sham and try to pull it to pieces.

Are we protecting ourselves sufficiently by having a rental contract signed and all payments made via bank transfer? Would it assist further to involve an agency? As such I guess the trustee would just see payments to the name of the agent and might not necessarily realise they were to me? Albeit any credit check would reveal me as the owner of the house I guess.

I have many more questions about the peculiarities of Dad´s bankruptcy which I will post separately!

Thank you in advance to anyone who can help.

alastairq

Are you in Scotland?

longtermplanner

PigletRoo wrote: »

The house they are currently renting is too expensive for them to be able to afford on just their pension income (which is the only income they will have once Dad loses his job - this is imminent - and ends up having to go bankrupt).

Have they looked at whether they will be eligible for housing benefit to help with the rent? http://www.turn2us.org.uk/benefits_search.aspx

We are wondering to what extent it is likely that a trustee in bankruptcy would attempt to overturn a rental contract between me and my parents, even if it is done at market value, as a transaction at an undervalue or similar? My limited understanding is that they should not be able to get very far with this claim provided that the rent is set at market value on an arm´s length contract but I am not at all sure about this.

The transactions at undervalue applies to sale of assets, not a rental contract.

The OR would be able to refuse to allow all the rent as an allowable expenses, if it is clear that they could easily rent somewhere considerably cheaper. I think this is extremely rarely used. If they would be paying you £2000 a month for rent (even if that was market rent for your luxurious des res) but could rent a normal place for £800, I guess the OR might consider it. But if the place they would be renting would be a normal, sensible place for them to live at a market rent then the OR would not gain anything by making them move elsewhere. The job of the OR is to recover money for creditors, not make a bankrupt's life a misery.

Will they have pensions from previous employment or just state pension? If only state pension and benefits, there will be no IPA and the OR won't care about any of their expenses.

PigletRoo

Thanks longtermplanner, that is very helpful information. I think Dad´s pension is just his state pension.

The house is just a little two bed end of terrace for 700 a month so hopefully we should be ok on that front.

I started looking into the houseing benefit question last night but have not gotten to the bottom of it - again I am not sure if we may run into problems by virtue of the house being mine and the council assuming it is not an above board rental arrangement or only set up to take advantage of housing benefit payments (they appear to have this power). I may speak to the council about this in the meantime.

Alastair, no they are in England.

Thanks again.

longtermplanner

If your dad's only income is state pension, he should be eligible for Pension Credit. This means he won't have to pay any council tax.

If he is getting pension credit and housing banefit and council tax benefit, can he not afford to stay where he is at the moment? ie not rent from you?

DevCoder

Just an aside, are you fully confident in becoming a landlord and all the ensues , gas safety checks, protecting deposit etc? Or are you getting letting agent involved?

10pence

There could be eligibility issues with housing benefit (HB), as renting to families: LINK However, your father could be eligible for HB in current property.

You mention rent in one paragraph and 'cannot help pay mortgage' in another, do they own more than one property, signed some over to you or you just getting a bit mixed up? If your father as signed assets over to another, the OR can petition to have that reversed.

As for the Pension credit, your father could be eligible for it depending on income, as you don't mention your mother - whether she is working or in receipt of benefit. This will in turn impact on council tax support, as will only be entitled to full support if in receipt of Guarantee Credit Pension Credit.

Thrugelmir

PigletRoo wrote: »

The house is just a little two bed end of terrace for 700 a month so hopefully we should be ok on that front.

.

Is that a realistic amount on just a state pension?

PigletRoo

Hello again all, thank you for your replies.

Thrugelmir it turns out he gets 700 GBP state pension, plus a couple of hundred from an employer´s pension. My Mum also has her state pension. So not a lot but just about enough.

10pence - I think it was just a stream of consciousness on my part. There is only one house. I meant pay the mortgage just in the sense that I cannot afford to let them live in the house rent free. From the research I have done HB may be ok as long as a proper lease in place, I am not living in the property with them and not set up specifically to benefit from HB, which is the case as the house has been let out for years already to normal tenants. I am going to speak to the council in any event to check.

Krisdory yes ok on that front, the house has been let out for a few years now and am aware what is involved in terms of checks etc.

Longtermplanner from a check I did on one of the check what benefits you are entitled to simulation things online he did not get pension credit entitlement. He can´t get housing benefit at the moment because he is still employed in a decent job. He is likely to lose that soon though and then have no realistic chance of getting another job due to his age or avoiding bankruptcy. So we are trying to line things up in advance. The house they are renting at the moment is expensive so they cannot stay there.