Renting to my wife??

Brighty

Hi all
Wife and I are separating,
I'm staying in our mortgaged home up north, carry on paying full mortgage as I currently do.
Wife is moving back down south with the kids to be near her family.
Intention is for her to move in to a rental property we have, once we're got the tenants out (feel bad about that, but no other way).
Property is mortgage free and owned 50% by my brother and 25% each myself and my wife.
Current rent is £800 a month.
How do we deal with this in terms of tenancy agreements and tax on rental income?
Can we just have an agreement between ourselves that she will pay £600 for the rent for the 3/4 she doesn't own, but I will write that off as child maintenance and so she lives rent free (I'd subsidise my brother for his lost income). As no rent changes hands, no rental income tax to pay? That would be the ideal, but I'm sure it won't work that way.
Or do we have to have a proper tenancy agreement, I pay wife £600 into her account for child maintenance, she pays rent of £600 back to me & brother, we pay tax on it? That seems so crazy that I'm sure that's what needs to happen. Or even more crazy, does rent have to be £800 and wife then pays £200 of it to herself, then pays tax on it, lol.


This one's confusing me


Thanks


Brighty

nidO

If the property's mortgage free, you can pretty much do what you want with it, there's no requirement for you to have a drawn up tenancy with rent being paid for it.

I'd make sure you do get a signed tenancy drawn up even if it's for a nominal £1 with an agreement for child maintenance for £1 in return though, as without either of these you could find yourself on the losing end of your wife claiming later down the line that she has a rent-free agreement to live in what is partly her own house through actions rather than a signed contract, and that oh you owe her child maintenance as well thanks.

JimmyTheWig

I'm no expert, but I would have believed that tax was due on the profits of the let whether the tenant pays cash or in kind. Writing off rent in lieu of child maintenance sounds like being paid in kind to me, so I would have said that rent was due.

I'd say she certainly doesn't have to pay rent to herself for her own share of the house - any more so that you have been paying yourselves rent on the family home.

Guest101

JimmyTheWig wrote: »

I'm no expert, but I would have believed that tax was due on the profits of the let whether the tenant pays cash or in kind. Writing off rent in lieu of child maintenance sounds like being paid in kind to me, so I would have said that rent was due.

I'd say she certainly doesn't have to pay rent to herself for her own share of the house - any more so that you have been paying yourselves rent on the family home.

A tricky point. But with the CSA guidelines that parents arrange child maintenance between themselves made slightly easier.

The property is not brining in an income. So the tax implications are zero.

The parents have decided that no child maintenance is due. So this also is zero.

So I would think that the tax implications are also zero.

Guest101

It is worth noting that as a joint owner of a property, it is unlikely that the wife could be a tenant. And also worth noting that as joint owners, any party would be at liberty to occupy the property, in lieu of a court order preventing this.

TBagpuss

It could get very complicated. I suspect that it would be better for your wife to rent a different property, using her share of the rent, and her maintenance from you, to cover the rent, or alternatively for her to buy you and your brother out. IF she can't raise enough to buy you court, then could you and she raise enough to buy out your brother? You would then have a much simpler situation where you and she own two properties, live in one each and have a charge back to even out any differences in value.

If that is not an option, then I would suggest a formal agreement (speak to a solicitor but this should probably be a trust deed setting out the shares you each have in the property, when and how it can be sold, and the terms on which your wife will be entitled to occupy it. It would seem reasomable for your wife to pay your brother 50% of market rent for her use of his share of the property and then you and she can work out how you deal with the issues of child support and 'rent' for your 25 % share.

Again, get proper advice. Bear in mind that CSA does not normally take into account money paid for a property unless the payer has no financial interest in the property, so you need to ensure that the agreement makes clear that if she were to claim child support via the CSA, she would automatically become liable to pay you 25% of market rent.

you are going to need proper, professional advice to get this drawn up,.

You also need to think about whether this is a long term arrangement or a temporary one. What happens if your brother wants to sell the house and release his capital? What if you do?

G_M

My instinct is this is a recipe for disaster somewhere down the line.

Make a clean break. If necessary, sell the property and use the proceeds as part of the setlement - wife then has cash to rent.

As for the tax, tenancy, income etc aspects, pretty much covered above.

ruggedtoast

I misread the title of this thread and it consequently does not contain what I was hoping for.

duchy

If you are seperated but not yet divorced then surely any property either of you own is joint marital property -and as you can't be a tenant of a property you own or part own -then this is a non starter ?

Kynthia

I personally would get advice from an accountant experienced in dealing with rental income. You need to know whether the HMRC would count lack of rent in exchange for lack of child support as 'rent in kind' and still expect tax on it. I think they would as essentially you are paying child support and your wife is paying rent, but just because you are saving yourselves the hassle of moving money back and forth doesn't mean that tax isn't due.
This is especially true if you are giving another part owner of the property money in lieu of rent, which really is rent money they are entitled to and should also be taxed. So even if you don't move the actual money back and forth you possibly need to act as if you have.

Then there's there's other possible complications from having family or a part owner living in the property such as the difficulty evicting if rent isn't paid, that housing benefit won't be paid should it be needed, who pays what for repairs and enhancements, etc. That's not to say don't do it but for everyone to make an informed choice.

Guest101

Kynthia wrote: »

I personally would get advice from an accountant experienced in dealing with rental income. You need to know whether the HMRC would count lack of rent in exchange for lack of child support as 'rent in kind' and still expect tax on it. I think they would as essentially you are paying child support and your wife is paying rent, but just because you are saving yourselves the hassle of moving money back and forth doesn't mean that tax isn't due.
This is especially true if you are giving another part owner of the property money in lieu of rent, which really is rent money they are entitled to and should also be taxed. So even if you don't move the actual money back and forth you possibly need to act as if you have.

Then there's there's other possible complications from having family or a part owner living in the property such as the difficulty evicting if rent isn't paid, that housing benefit won't be paid should it be needed, who pays what for repairs and enhancements, etc. That's not to say don't do it but for everyone to make an informed choice.

As previously said, she is a part owner and can live at the house rent free. So not rent due.

They also have agreed no child support due. Which they can do.

The brother may have to pay tax, but that's not relevent to the OP