Renting to Parents & Tax

FredDogsMum

Hello Wise People

My Dad and his Partner currently each live in one bed-roomed sheltered accommodation and between them pay £1,100.00 a month in rent.

They want to live together but Housing can not help them and as they are in their 70's don't want to rent privately as they don't want to have to worry that they will have to keep renewing the deal each year and possibly have to move again.

They do not ever plan to marry and they don't have any assets of capital to put in to this.

So my husband and I are going to buy a second home for them to live in.

We are funding this from some savings and the rest is being mortgaged with a mortgage for a second property not a buy to let mortgage.

The plan is that we allow them to live there for life or as long as they are able.

So to make this financially possible we are thinking of charging them the same rent they pay now but putting some of this aside so that when there is only one of them they only have to pay half the rent and we will use the extra we have now to top up the payments.

We know that this is a bit of a gamble and we may loose or gain financially in the long term based on the house price.

The cost of doing this for us including SDLT will be about £15K.

So over and above the interest we have to pay on the borrowing and of course we will loose the little bit of interest we currently get on our savings. We will also have to pay tax on the rental income as I don't think there are any tax breaks for renting to family. My husband is a 40% tax payer too so I understand this is going to be significant.

Us doing this will enable them both to give back their flats.

Can anyone think if a better way for us to financially structure this.

One idea I had but not sure if its okay would be for us to charge a small rent then for my dad to give to me a regular amount of money each month on the basis that it is money he does not need. Which I understand is legal as long as he writes to the tax man and tells him. Anyone ever had any dealings in that.

Thanks

Fred Dogs Mum

Red-Squirrel_2

Sorry for the obvious question, but is there any reason why one can't move into the other's current accommodation?

Then they'd keep all the benefits of being social tenants and in sheltered housing.

Lots of older couples live in one bed sheltered flats together.

davidmcn

FredDogsMum wrote: »

One idea I had but not sure if its okay would be for us to charge a small rent then for my dad to give to me a regular amount of money each month on the basis that it is money he does not need. Which I understand is legal as long as he writes to the tax man and tells him.

If this is money which he's only giving you because in return you're providing him with accommodation - why would that not be treated as rent?

00ec25

FredDogsMum wrote: »

One idea I had but not sure if its okay would be for us to charge a small rent then for my dad to give to me a regular amount of money each month on the basis that it is money he does not need. Which I understand is legal as long as he writes to the tax man and tells him. Anyone ever had any dealings in that.

forget that idea

it relates to how your father would reduce his estate's inheritance tax on his death by having regularly paid for "something" from income
a) by the sounds of it IHT is never going to be an issue for him
b) it would still be taxable income for you since you own the property and are getting an income from it.

FredDogsMum

Hi Red

We have thought of that and sort of tried it but their places are just too small. Great for one just too small for 2 especially as they both have 75 years of their own belongings and history.

Dad also has a medical condition and having the ability to sleep alone sometimes or for him to have his own room is a key factor.

We have found an ideal place that meets all their needs and we are happy to do this for them we just need to sort out the best financial deal for all of us really.

Thanks

FredDogsMum

How about if we only rented to his lady friend and she lets him live with her for free. Then he give me his money.....

Just trying to find a tax loop hole here... Knowing there probably isn't one. Rarely do good deeds go unpunished so they say.

Red-Squirrel_2

FredDogsMum wrote: »

Hi Red

We have thought of that and sort of tried it but their places are just too small. Great for one just too small for 2 especially as they both have 75 years of their own belongings and history.

Dad also has a medical condition and having the ability to sleep alone sometimes or for him to have his own room is a key factor.

We have found an ideal place that meets all their needs and we are happy to do this for them we just need to sort out the best financial deal for all of us really.

Thanks

Hmm,

What about the sheltered element? That's quite a significant thing for them to give up.


Unfortunately downsizing does mean the need to consolidate belongings, they can't both keep 75 years worth of stuff wherever they live, surely?

Have they been assessed by the HA/social care? Why no marriage? If they were married surely that would help their case for needing joint accommodation?

Red-Squirrel_2

FredDogsMum wrote: »

How about if we only rented to his lady friend and she lets him live with her for free. Then he give me his money.....

Just trying to find a tax loop hole here... Knowing there probably isn't one. Rarely do good deeds go unpunished so they say.

Try to change your mindset, tax isn't a punishment, its a privilege to be in a financial position where you can contribute to society. Pay with pride.

davidmcn

FredDogsMum wrote: »

Rarely do good deeds go unpunished so they say.

If by "punishment" you mean "paying the same tax as the rest of us", I suppose so.

xylophone

the rest is being mortgaged with a mortgage for a second property not a buy to let mortgage.

Does the mortgagee know that you intend to rent out the property and to a relative?

Who is going to be responsible for insurance and water/power/council tax etc?

AdrianC

FredDogsMum wrote: »

My Dad and his Partner currently each live in one bed-roomed sheltered accommodation
...

They want to live together

Will they still need sheltered housing? If not now, then in the foreseeable future?

Can they move into one of their existing properties?

So my husband and I are going to buy a second home for them to live in.

We are funding this from some savings and the rest is being mortgaged with a mortgage for a second property not a buy to let mortgage.

Do the mortgage company know this isn't a second property for you, but to be let to a close family member?

So to make this financially possible we are thinking of charging them the same rent they pay now

Are they paying their rent themselves, out of pensions, or out of other benefits?