Renting Second Home to family members?

einsley

Ok, thinking about renting a second home to a family member (parents) and I have a few questions...

Firstly, is there a minimum rent that has to paid? Would it be possible for them to live there rent free, only paying for utilities? - I realise that this may change the property purpose etc, but what exactly are the implications of this?
The house still has a small chunk of unpaid morgage (which I believe has to be changed to a 'buy to let' morgage), does this affect anything? Could the morgage be transferred to first home? (Currently owned outright)

Anyone have experience doing this and any advice?

marliepanda

einsley wrote: »

Ok, thinking about renting a second home to a family member (parents) and I have a few questions...

Firstly, is there a minimum rent that has to paid? Would it be possible for them to live there rent free, only paying for utilities? - I realise that this may change the property purpose etc, but what exactly are the implications of this?
The house still has a small chunk of unpaid morgage (which I believe has to be changed to a 'buy to let' morgage), does this affect anything? Could the morgage be transferred to first home? (Currently owned outright)

Anyone have experience doing this and any advice?

You can remortgage your home and pay that money towards the other house if you want. You cannot 'transfer' it, but thats a way to shift the funding.

Once it is your house, you can let whoever you want live there. However, if they will need any housing benefit to support that, you will run into issues.

Out,_Vile_Jelly

Mixing business with friends/family rarely ends well. Being a landlord is a business- please read the new LL tips thread to see if you still fancy it: https://forums.moneysavingexpert.com/discussion/comment/41155280#Comment_41155280

einsley

Hi, there's no housing benefit involved. From my research, I got the impression that renting to a 'connected' person would change things? Does it not?

Pixie5740

If they won't be paying rent either in cash or in kind they you will not be renting the property to them. The family members will not be tenants but excluded occupiers.

You would need to check your mortgage and insurance T&C but I think as long as you're not letting the place (which you won't be) then you will probably be ok.

booksurr

einsley wrote: »

Hi, there's no housing benefit involved. From my research, I got the impression that renting to a 'connected' person would change things? Does it not?

whether you need to convert to a BTL mortgage will be down to your current lender

if they do insist on it then because of the "connection" the loan will legally be defined as a "Regulated BTL mortgage". The two main difference between that and a non regulated one are:
a) because it is family, the presumption is you will not be motivated to evict as easily as you would with a "normal" tenant, and so the lending criteria are those used for a normal residential mortgage (ie affordability and income) not those used for BTL (ie rental income cover); and
b) as a result of a) there are only a few lenders who offer such mortgages as their view of the risk is if you have payment problems because the rent stops you will take forever to evict and they will thus have a much more messy repossession

there is no minimum rent requirement. The property will not be available for you to use as a residence since it will be occupied by someone else. They will therefore be your tenant whether you charge them rent or not. You will be required to meet all the legal obligations of a LL, the easy example being annual gas safety certification.

If your parents pay the utilities and they would be legally liable for the council tax anyway since they are the occupants, that leaves you with only repair bills and gas test (if applic) to pay for yourself. HMRC rules say that the amount of expenses you can claim in a connected person below market rate rental situation is restricted to the value of the income you receive. Patently therefore with £0 income you can claim £0 expenses. If you did charge a nominal rent to cover your expenses then your tax position would be restricted to declaring £0 net profit. You absolutely cannot create a tax loss in this situation, so equally you cannot do the normal thing of carrying forward any loss to be offset against future profits.

as marlie says you cannot "transfer" a mortgage. You can pay it off, in your case by borrowing more against your own home - if you have the equity to do so in your own home and can still meet the affordability criteria of the increased loan size. The extra interest you incur on that increased loan will not be eligible for tax relief for the reason above...

xylophone

The property will not be available for you to use as a residence since it will be occupied by someone else.

But if it really were "a second home", it would be available to him to use as a residence if he so wished?

He might choose to increase the mortgage on his dwelling house and pay off the mortgage on the second property - he would then permit the parents to live there as his guests or even caretakers?

Presumably he could register the insurance/bills etc in his own name- there would be nothing to prevent the parents agreeing to pay his bills and setting up the necessary DDs from their bank account?

booksurr

xylophone wrote: »

But if it really were "a second home", it would be available to him to use as a residence if he so wished?

He might choose to increase the mortgage on his dwelling house and pay off the mortgage on the second property - he would then permit the parents to live there as his guests or even caretakers?

Presumably he could register the insurance/bills etc in his own name- there would be nothing to prevent the parents agreeing to pay his bills and setting up the necessary DDs from their bank account?

is your point that he is not a LL or that it is not a second home?

his parents occupation will be a matter of fact. They will not have another residence so it will be their de facto main residence making them the liable occupants for council tax. Whether that is legally enough to make him a LL is neither confirmed nor denied by your comments.

If the parents pay other utility bills that are registered in his name then that simply further complicates the tax position since it then becomes a question of whether he has a share of the "household" expenses or not since by definition in your view he retains a share of the use of the property so should bear some of the utility cost himself otherwise it would be taxable income (aka "rent") used to cover his personal costs on his share

xylophone

Presumably if the property were his second home, then he could opt to pay the CT himself - the parents would be his lodgers.

He could pay all other bills/insurance etc and his parents could pay him two thirds as their share.

There would be nothing to prevent the parents giving their son cash gifts at Christmas and birthdays?

booksurr

xylophone wrote: »

Presumably if the property were his second home, then he could opt to pay the CT himself - the parents would be his lodgers.

He could pay all other bills/insurance etc and his parents could pay him two thirds as their share.

There would be nothing to prevent the parents giving their son cash gifts at Christmas and birthdays?

given your normal response is to google, I am surprised that you have not checked this already?

As you well know, the hierarchy of liability is based on the facts of occupation, to whit: his parents are the occupiers and are therefore solely liable.

"He" does not occupy the premises himself as his main home. The reality is his parents are the de facto occupiers, and he does not occupy the property as his main home, therefore the parents cannot in any way, shape, or form, be his lodgers, since he is not a resident LL.

Pixie5740

A resident landlord isn't the only requirement to make people excluded occupiers (lodgers). The fact they won't be paying rent, regardless of whether or not the OP lives there, will make the family members excluded occupiers. The family members would still be liable for council tax though.