Buying a property for family member - purchase, tax & insurance questions

mither_2

Hello,

This question probably crosses two forum areas but I thought this was the most appropriate one so here goes.

I have done some research but not really found the answers and so am looking for some advice if possible.

Situation is as follows:
Father lives in a rented property that is linked to his job
He and my mother divorced many years ago and he is single with no dependants.
He's in reasonably good health (still doing quite a physical job) and so could live for many more years (hopefully)
Doesn't own a property and has limited assets
Set to retire in two years at 68 (could have retired already)
Has a small private pension and will receive a state pension as has always worked and paid national insurance but very limited savings.
Therefore he has no means to buy a property and will either have to use up his modest savings renting somewhere privately until they are gone or will immediately be reliant on the council finding him a property.
From what I can read most councils have limited housing stock and I would assume that families will be prioritised particularly sicne he has savings even if they are meagre.

Possible options:
I have cash available and could purchase somewhere very modest for him to live in as he wouldn't be able to get a mortgage and doesn't have cash available to buy even if he took all his savings and cash in his pension (which would likely involved paying tax as it was taken out and so would be another downside)
I already own a property and so would need to pay a 35 SDLT surchage
No way I could do a buy to let as renting to a family member so would have to pay with cash which I can do.
Could/would the council pay me the rent as his landlord? It would be a relatively small amount, and presumably they would need to provide him with somewhere to live anyway, but it is the concept of paying a relative the rent which may not be possible?
If I received no rent from him (i let him stay there for free and didn't receive money for the property) could I treat it like a business loss i.e £6k per annum in lost rent could possibly then be written off my personal tax bill?

Whatever i do would have to be done officially with tenancy agreements etc and it being made clear that I owned the property but these are all secondary issues for now I need to work out how this could be done financially.

Any advice would be much appreciated. As you can see I'm at quite an early stage but I worry what could happen in two years and want to consider my options now.

Annisele

mither wrote: »

Could/would the council pay me the rent as his landlord? It would be a relatively small amount, and presumably they would need to provide him with somewhere to live anyway, but it is the concept of paying a relative the rent which may not be possible?

The rules on this are complex - and I don't pretend to fully understand them - but I believe the answer is going to end up being absolutely not. The council is going to think this is a "contrived tenancy" (giving you the term so you can google it).

If I received no rent from him (i let him stay there for free and didn't receive money for the property) could I treat it like a business loss i.e £6k per annum in lost rent could possibly then be written off my personal tax bill?

Nope. This doesn't even sound as though it's a business arrangement - there's no trading, and no intention on your part to make a profit. (Self employed people don't have to actually make a profit to count as self employed - but they have to be doing something that they do intend will eventually produce a positive income.) Even if it was a business arrangement, losses happen when you spend money on stuff - a loss of opportunity to make a profit isn't actually a loss.

Does your father even want you to buy a house for him? He might be quite happy to rent.

mither_2

Thank you for this. Does anyone else has any suggestions of possible options that I should consider?

No, I haven't discussed it with him. He may well be happy to rent in a location of his choice whiolst his savings allow but the diffculty is what happends after that.

He is burying his head in the sand a bit. I suspect he realises that the council could just put him anywhere and it would likely be much worse than he's used to.

00ec25

tax law expressly prevents you claiming a loss when letting to a family member.
the idea of claiming a notional loss is not worth responding to other than with: NO

are you looking to make money from this "investment"?
you are buying with cash so won't have any mortgage to be paid, but presumably you are looking for a rate of return on your money?

if not, the single most tax efficient thing you could do is to gift your father the money and let him buy in his own name.
- no higher rate SDLT for you
- you will inherit it back on death without having to pay capital gains tax
- father won't have inheritance tax given what you say about his circumstances

of course the above is a gamble in case father ends up in a care home and his property has to be sold to fund it - but then I would sincerely hope you would rather see your father in comfortable care than you have money and he lives in deprivation


re council paying your the rent - the contrived tenancy rules look at what is the motive behind the letting. You would struggle in my opinion since you have no prior record of property letting and would presumably sell the property once father is dead so no suggestion of ongoing letting business. As such you will struggle to convince the council that you would genuinely evict your father if the rent stopped or if he himself could not afford to pay the difference between your charge and the council rate. the council rate is always a % below the local average private rent level so rather hard to hide the fact your rental level if you manipulate it so father does not have to pay

Annisele

A super straightforward option is that you just pay his rent for him (or transfer a set amount of money to him every month).


I think your original post suggests that you might have several different things going on. I can't tell the actual situation, but my guess - and I fully accept that this is just a guess - is that some but not all of these things are true:

• You're worried about where your father is going to live, and you want to help.
• You want to invest in another property, and you'd want to do that regardless of your father's situation.
• You have some cash burning a hole in your pocket, and you want to do something with it other than leave it in a bank account.
• You'd quite like the state to contribute towards the purchase of a second house for you. (I just add this one to cover it off - but if that is any part of your motivation, this board probably isn't the right place for you to be asking advice).

If it's only the first thing, then buying a property for your father to live in probably isn't a great idea (unless you're so rich that the money you'd spend on it is peanuts to you - and in that case, just give him the money so he can buy his own).


If it's the first and the second thing (but none of the others), then I think that what you're really wanting to do is start a business letting property. In that case, you might find that a property that suits your father isn't really a good prospect as a general rental property - and you'd have to think about what to do about that conflict.


I appreciate that none of that is options for what you could do, but it's hard to speculate on options without really understanding your aims.

Thrugelmir

Would not buy a property that would be suitable for him to join you. Seperate living area in order for him to maintain his independence. His income would then be more than adequate, Even pay you a notional rent to make a contribution to expenes.

Mojisola

mither wrote: »

No, I haven't discussed it with him. He may well be happy to rent in a location of his choice whiolst his savings allow but the diffculty is what happends after that.

He would claim housing benefit.

AnotherJoe

Mojisola wrote: »

He would claim housing benefit.

... and you could subsidise him as well.

tlc678910

00ec25 wrote: »

if not, the single most tax efficient thing you could do is to gift your father the money and let him buy in his own name.
- no higher rate SDLT for you
- you will inherit it back on death without having to pay capital gains tax
- father won't have inheritance tax given what you say about his circumstances

of course the above is a gamble in case father ends up in a care home and his property has to be sold to fund it - but then I would sincerely hope you would rather see your father in comfortable care than you have money and he lives in deprivation.

You could do the above and avoid the obligations of being a landlord (gas checks/insurance/tax returns etc etc) as your father owns the property, but you could protect your money with a charge against the property - so you get your money back if the property is sold. A charge is like what a mortgage lender normally has so the property can’t be sold until the charge is released (when you are paid back).

I do a property return on the self assessment tax form and you are allowed to let a property undervalue (or charge no rent at all) but if you choose to do this you are not allowed to claim losses from this.

Tlc

00ec25

tlc678910 wrote: »

I do a property return on the self assessment tax form and you are allowed to let a property undervalue (or charge no rent at all) but if you choose to do this you are not allowed to claim losses from this.

which is what i said in the first line

tlc678910

00ec25 wrote: »

which is what i said in the first line

Very similar but as far as I know the rule is not related to whether it is a family member or not but to the letting under value. If the rent was charged at the ordinary market value you would be able to handle your tax like any other letting property as far as I know(?)