Renting to family affect their benefits?

exploringdora

Hi,

My friends have recently come into some money and have decided to invest in a rental property. This has happened at the same time as their daughter being given notice on her property, so it seems an obvious solution that their daughter rents the new property.

The daughter is in receipt of benefits, including housing benefits. This of course isn't an issue except my friends seem reticent to set the situation up as a normal let and are saying they want their daughter to keep the housing benefit to live on.

Whilst this is undoubtedly generous I'm a bit worried they could be opening themselves up to a fraud claim. They did talk about having the money paid to them but then giving it back to their daughter, which again I worry could cause them trouble. Am I worrying unnecessarily?

Also, if they don't set this up like a normal rent would that affect the daughter's right to housing benefit in the first place?

TIA

anselld

It would be very difficult to avoid the rules on "contrived tenancy", especially market rent is not being payed to the parents and declared as income. It would be dodgy enough even if they did try to set it up as a normal arms-length contract.

Contrived tenancy is benefit fraud.

The whole idea is a recipe for trouble.

http://england.shelter.org.uk/get_advice/housing_benefit_and_local_housing_allowance/what_is_housing_benefit/housing_benefit_if_renting_from_a_family_member

marliepanda

It's fraud. There is clearly no liability for rent.

exploringdora

Thank you so much. I know they're only trying to do what's best for their daughter, but I'm very worried they're being led down the wrong road. I hope this info will help them.

theartfullodger

The way to handle this (takes time but..) is to let daughter rent somewhere else & for them to rent the new investment to anyone else (suitably referenced & checked etc etc..) - 6 month deal . Then after 6 or so months if they still wish to go ahead, evict the tenants they took (so they've shown they are normal, boring, commercial-we-only-care-about-us landlord..) and start renting to daughter, normal commercial market rates... She should then get HB/LHA etc..

If they rent to daughter they MUST make it clear they will handle things normally & be quite happy to evict her if there are problems... - and do so of there are...

Morally suspect, should succeed (nope, I don't & wouldn't)

ScorpiondeRooftrouser

Surely they'd be better off just renting it out to someone else and giving the proceeds (after tax) to their daughter.

exploringdora

Thanks artful. I did suspect that myself (as well as the morally suspect bit!)

Scorpion - I suspect they already give their daughter money anyway, which is where the possible handing back the housing benefit came up. Though I suppose if they rent the new property legitimately it still means the daughter is out of a home, unless they sort this quickly enough for her to find a new one.

G_M

It's benefit fraud.

I for one don't see why I should be paying the daughter money intended to cover her housing needs in order for her to be able to spend it on.... whatever.

And the parents may well be comitting tax evasion too.

exploringdora

Oh wow G_M, I hadn't even thought of the tax evasion side of it. That's even more food for thought.

marliepanda

exploringdora wrote: »

Thanks artful. I did suspect that myself (as well as the morally suspect bit!)

Scorpion - I suspect they already give their daughter money anyway, which is where the possible handing back the housing benefit came up. Though I suppose if they rent the new property legitimately it still means the daughter is out of a home, unless they sort this quickly enough for her to find a new one.

It'll be no different if she just moves in and pays her family no rent (which is the plan anyway)

She just want get tax payer funded pocket money for housing she doesn't need.

They can still let her live there for free? Why is that not an option?

tlc678910

If your friends would like to provide a home for their daughter and are happy for her to keep the housing benefit (so they obviously are not in need of the rent money from her or an alternative tenant) I think the best solution might be to just buy a house to live in rent free. Health permitting their daughter might be able to work/work more without feeling stuck in a benefits trap and improve her income and quality of life without doing anything underhand.

If she is not an only child will this situation create jealousy though? In which case they may be better to keep out of her housing situation (but help with private deposit/move etc)