Renting/Buying off Parents

deanbwfc

hi, I'm hoping somebody could give me some advice?

I live with my girlfriend in her parents owned house, her parents live next door. The mortgage on the house we live in was paid off some years ago. We've lived in the house for 4 years and pay £500 a month. The house is in her parents name but the bills electric, gas etc is in ours. There is no written agreement in place, we're all good friends and get on well, the plan is after 25 years of paying £500 a month the house will be ours. Just wondering if there is any legal/tax issue for her parents or us? Nothing has ever been declared, it's just been a private agreement between us

Pixie5740

There's income tax to pay on the £500 rent they receive from you each month.

Linton

If you pay the gf's parents for living in a house owned by them, you are their tenants. This has tax implications...

1) they should be paying income tax on the money you give them
2) when they pass the house to you they will have to pay Capital gains tax on the market value gained over the 25+ years. One can predict that this will be significant.

So it seems to me that this is a bad arrangement for them.

Also as Landlords they have legal obligations particularly regarding Health & Safety eg safety certificate for all gas appliances.

Mojisola

deanbwfc wrote: »

There is no written agreement in place, we're all good friends and get on well, the plan is after 25 years of paying £500 a month the house will be ours.

So what happens if they change their minds about signing the house over to you?

What if they need any kind of care before the 25 years are up? They won't be able to give away a valuable asset.

If they own two houses, will their estates be above the inheritance tax level? They won't be giving you the house until 2035 and they'll need to live another seven years beyond that.

What if they die before 2035 - will the house come to your OH or will the estate be divided between siblings?

What if you want to move somewhere else? Will you have to walk away from the money you have paid them so far?

Linton

So risky for you and possibly expensive for them. Also what happens if you and gf split up? It may work fine or it could all end in tears, arguments, and broken relationships.

Strongly recommend that you and the gf's parents get professional advice.

deanbwfc

Thanks for the replies. Just to add something else to the scenario, her parents took out a loan to renovate the house before we moved in, around £20k and the £500 a month has been paying off that loan so effectively we've been living rent free, does that change things?

The plan is for her parents to sign over the house whenever she wants too. If we were to split up I'd just walk away

Yorkie1

No it doesn't change things.

They are receiving money from you in return for you being able to live there. That makes them landlords with the duties etc mentioned above.

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12
for information about being LLs.

silvercar

Is the £500 a month really rent or is it an agreed sale for £150,000 in 25 years hence that you are drip paying at £500 a month. A sort of savings plan for you to save up the money to purchase.

CLAPTON

although I think it is a very risky arrangement with no certainty
it would seem you are buying the house rather than renting so tax on the 500 wouldn't be relevant


however capital gains tax in 25 years could be considerable and better for them to give the house (if that is their intention) now.

Mojisola

They could give you the house now and you could pay off the debt with monthly payments.

That would give you the option of selling up, repaying them and moving on if you got a dream job somewhere else or just want to move elsewhere.

Cautious_Optimist

GF's parents owe income tax on the £500 / month you pay them.
They also may owe CGT if house sold.
But GF's parents will each have their own CGT allowance to put against this. (Presuming they are married or own the house together)

Renovation costs usually deducted from CGT, but maintenance deducted from income tax.
So the actual renovation costs will probably have to go against CGT, unless they can be classed as maintenance.
But maybe the loan interest (and possibly capital repayment???) can go against income tax bill..?

You may be liable for "gift tax" if the property is "given" to you.
(Land Registry may inform HMRC if house not sold at market value).
Look into option of GF's parents gifting you the house as a wedding present, as there are special allowances for wedding gifts.

You need to see an accountant ASAP about this.
Hopefully they can mostly sort it for you.
Have a look at the HMRC website, to give you a bit of information before speaking to the accountant.
Any receipts or records of renovation work available?