Getting rental income from a tenant-in-common

Vigil

A friend of mine is interested in purchasing a house. With his current income and a mortgage, he can muster 4/5 of the value. I have 1/5 of the value in cash. What we'd like to do is to purchase the house as tenants-in-common, with him owning 4/5 and me 1/5. He would then live in the house, and would pay me 1/5 of fair rental for the entire house. To be clear, he would be happy with this arrangement (and would want to steadily buy me out when he can, which I would also be happy with).

However, I believe there are issues with paying rent between tenants-in-common - specifically that there is no obligation to pay such rent. I am curious whether the above proposed idea could still work - is it just that there is no obligation to pay rent, or rather that him paying me could not be legally considered rent at all? If the former, we could simply agree that we will do it. If the latter it's a bit of a non-starter.

If it doesn't work, perhaps there is a way of jointly forming a limited company to purchase the house to achieve something similar? If anyone has experience with something like that, I would be grateful for advice.

da_rule

Do you already own a house? If so there’s the higher rate of stamp duty to consider as well as capital gains tax when you do sell your share.

You’d need to create the obligation via an agreement.

If you don’t already own a property then you will be getting rid of your first time buyer status.

G_M

Since you would be well advised to get an agreement drawn up by a solicitor (find one who does conveyancing and has experience/expertise in Deeds of this nature), you'd be best discussing this with him.


As artful says, there are also potential CGT, SDLT, & Income Tax implications, and potential loss of FTB status

[Deleted User]

Vigil wrote: »

A friend of mine is interested in purchasing a house. With his current income and a mortgage, he can muster 4/5 of the value. I have 1/5 of the value in cash. What we'd like to do is to purchase the house as tenants-in-common, with him owning 4/5 and me 1/5. He would then live in the house, and would pay me 1/5 of fair rental for the entire house. To be clear, he would be happy with this arrangement (and would want to steadily buy me out when he can, which I would also be happy with).

However, I believe there are issues with paying rent between tenants-in-common - specifically that there is no obligation to pay such rent. I am curious whether the above proposed idea could still work - is it just that there is no obligation to pay rent, or rather that him paying me could not be legally considered rent at all? If the former, we could simply agree that we will do it. If the latter it's a bit of a non-starter.

If it doesn't work, perhaps there is a way of jointly forming a limited company to purchase the house to achieve something similar? If anyone has experience with something like that, I would be grateful for advice.

If you want to own the property as tenants in common you will need to be party to the mortgage. Then as others have said there are tax implications for you becoming an owner.

If you form a limited company to buy the property then the higher rate of SDLT will still apply and its the company that will have to apply for the mortgage.

If your friend could find a mortgage lender willing to accept a partially loaned deposit then you could lend him the money and place a second charge against the property (mortgage lender would have the first). You would then have a loan agreement between the two of you and it would mean the higher rate of SDLT and CGT are no longer issues.

csgohan4

Money and friends shouldn't mix, it can go badly, what if you want to sell and the other party refuses?

ThePants999

Why not set up a private mortgage arrangement rather than take a stake in the house?

00ec25

Vigil wrote: »

If it doesn't work, perhaps there is a way of jointly forming a limited company to purchase the house to achieve something similar?.

drop that idea immediately
the co-owner of the company would be living in the property as his main home therefore would be charged a benefit in kind income tax charge on the market value of the entire rent

AnotherJoe

If you must do this, and you shouldn't, way too many things that can go wrong, I suggest you loan him the money, with a charge against the house, and he pays it back at a schedule that you calculate would be the same as 1/5 the open market rent. With an agreement that once he has paid back the 1/5th plus an additional % to allow for the money you could have made on your money thats now locked away, the charge is released.
You will be liable to income tax on this.
The agreement should also have a buy out clause whereby if he fails to make payments within a certain time or if one party wishes to sell, then that can be forced.A a method to calculate what % of the house you own should he not have paid it all back.
You'll also be really restricted on lenders that will allow this.

There are so many complexities here that i suggest you just don't.