First house...friends living with me, confused!

delmonta

Hi Everyone

I have just bought my first house. It has 3 bedrooms, and for the time being I will be living in one and was hoping to let two friends live in the other two rent-free, but they would pay bills etc.

Firstly, is this ok to just let them live with me, do I have to fill in any forms or inform anyone?

I have just got a letter about Council Tax. It is asking for all occupier details, and the type of each occupant : owner, joint owner, tenant, joint tenant, lodger. These are the options. What would my two friends be if they aren't paying rent? Do I need to inform the council they are living here and have them pay council tax? Is it ok to have them pay bills?

Also, will I be liable for capital gains tax when selling the house if I let friends live there like this?

Sorry this is all new to me, and Im very confused as you can probably tell. If anyone can shed any light on the situation, that would be amazing

thanks

Alex

BitterAndTwisted

The status of your friends would be lodgers, even if they aren't paying you any rent. Because you will not be the sole occupant you will not be entitled to claim 25% single occupancy discount on the Council Tax. The Council Tax bill will be in your sole name. Your friends should really be covering the 25% discount you will be losing at the very least.

If the utility bills will be in your name, then there's no issue. Your friends making a contribution towards them will be solely between you and them.

As you will be occupying the property throughout, there will be no Capital Gains Tax due once you come to sell.

You have heard of the maxim that those things which come to you with no cost to you, are often considered of no value. Why would you agree to your friends living in your home and not pay you any rent? Owning a property always comes with expenses. Sometimes unexpected ones. A roof repair. A new central-heating boiler. All sorts of things. Add to that wear and tear on your furniture and carpets, appliances breaking down when it's least convenient. And you'll be covering that with no contribution from your pals? Not wise.

Sharon87

Hmm this sounds like it could turn into a tricky situation between you and your friends. I would suggest putting in some ground rules before you share with anyone, things like bills, cleaning.etc I also agree with the above poster and money. I personally would request a nominal amount of rent to cover any wear and tear costs from the friends. Who will cover the costs of cleaning products and toilet roll, will that be shared between everyone?

Sharing bills is understandable - no problems. I live in a house share and it's expected.

moneyistooshorttomention

That does sound extremely generous to allow friends to live with you for nothing in effect (ie just that share of the bills).

Agreed they would need to cover your missing 25% Council Tax discount there would be because of them staying there - as well as share towards utility bills, etc.

What I am wondering is whether you should perhaps charge them a "peppercorn" rent (ie a very nominal one of, say, £10 per week each at least) in case you were missing out on being covered for any legal aspects if it came to it. I don't know whether it might be necessary to charge them something (however low) in order to have it very clear that its YOUR house and remains that way and they will have no ownership of it/no say in what happens to it. I wonder whether if you didn't charge them anything they might start trying to claim some sort of entitlement to your house equity at some point if they were living there in a "relationship" sort of way, rather than a "lodger" sort of way iyswim?

I cant think quite how to put this clearly - but it does feel like you might be taking a bit of a risk legally not to charge them anything at all for rent.

The sort of situation I'm thinking of is where home-owners might have a strip of nice land they want to walk on at the back of their house and put a gate in their back fence to be able to walk out onto it. The owner of that bit of nice land cant just agree its okay for them to walk there. They would usually charge them a peppercorn rent of, say, £1 a year in order to make it plain that THEY were the owner and the home-owners nearby could never claim any ownership.

Maybe you need to do something similar with your house - ie so that your friends could never claim any ownership of it.

delmonta

Thank you very much for the help guys. Firstly I just want to get completely to the bottom of the council tax thing!

So they are lodgers not tenants, and that is not to do with rent? What makes them lodgers?

So on the council tax form I need to put my friends names down too, not just my own? But I just cant claim the single occupancy discount?

So are you saying that we should be splitting the council tax bill 3 ways, but they should also cover the 25% I'd be losing, or that they should just cover the 25%?

Sorry for all the questions...

So as far as me letting them live here for free...firstly I have known these friends forever and trust them completely, and know that they would never try and take over the property etc!

Also, I have just inherited some money out of the blue and been lucky enough to buy a house outright, which I feel no more deserving of than them. So I am getting rent for free too, they are paying more than enough for bills, and they buy all their own stuff, food, toilet paper, bits of furniture for their rooms etc!

It will also be fairly temporary, maybe for a year. I plan to rent the whole house out at some point, but there is work that needs doing, which they will help with too

Thanks again for all your help

seven-day-weekend

They are lodgers because you live in the house also. If you did not live there they would be tenants, with far more rights than lodgers.

I understand your feeling about the inheritance (I too have recently been in a similar position), but wherever else they live they will have to pay rent. I would charge them something because although they are you friends you ought to keep it business-like. Maybe out of that rent you could pay for a gardener or cleaner or something else that would benefit all of you if you are feeling guilty about your own good fortune (I am about mine ). Also draw up a set of house rules about cooking, cleaning etc, otherwise you may not remain friends much longer!

You can now earn up to £7500 a year in rent from the Rent-a-Room scheme, just upped from £4500 in the Budget. This means that you do not have to pay any tax on rent payments up to this level.

Hope this helps.

http://www.moneywise.co.uk/news/2015-07-08/summer-budget-2015-rent-room-threshold-to-rise

LandyAndy

delmonta wrote: »

Thank you very much for the help guys. Firstly I just want to get completely to the bottom of the council tax thing!

So they are lodgers not tenants, and that is not to do with rent?Correct What makes them lodgers? That you live there too

So on the council tax form I need to put my friends names down too, not just my own? But I just cant claim the single occupancy discount?Correct

So are you saying that we should be splitting the council tax bill 3 ways, but they should also cover the 25% I'd be losing, or that they should just cover the 25%?You should do what you want but be aware that they are costing you the 25% discount. That they cover that, at least, seems reasonable

..............................

maninthestreet

Your friends are going to be extremely reluctant to move out of your house if they are living their rent-free - have you thought this through properly?

[Deleted User]

Friends and money don't mix brilliantly. Friends and free renting.. well that's a disaster waiting to happen. Do it right, get a basic tenancy agreement, small rent that will cover the bills and keep you under the tax free allowance in the rent-a-room scheme.

If you have a rolling 3-monthly notice period, that gives you, and them, some security.

If you only have one property, I don't think capital gains tax would be involved when it came to selling it.

TBagpuss

If your friends are living with you, rather than simply staying for a week or so, then they are lodgers and it seems very strange that they should not be paying - you can always chose to charge them less than they would pay in open market conditions, particualrly if this is intended to be a short term thing while they save for their own accommodation.

I would suggest that you sit down and work out your monthly budget for the house - e.g. mortgage, council tax, utility bills etc. Look at what renting a room costs locally, and then work out what it would be reasonable for your friends to pay you.

On a practical level, I would also sit down with them and agree on other house rules - how are you going to organise paying for household supplies such as toilet roll and cleaning products ? Are you going to each keep your own food or will you eat / cook together? How will you share cleaning?

All of those things are important to work out in any house-sharing situation.

mrginge

BitterAndTwisted wrote: »

As you will be occupying the property throughout, there will be no Capital Gains Tax due once you come to sell.

This is not necessarily true.