Landlord pays my council tax

pouletnuggets

Hi all,

I'm new here so I hope this is the right place to post. This is a rather complex rental situation, so please bear with me while I try to explain:

I have entered into a peculiar renting arrangement with the particulars as follow.

There are five characters involved: A- the father, B and C, his two sons, and D and E, two lodgers/renters, I am one of D/E. All are adults.

1. This is an off-market deal and the participants ABCDE know each other/their families

2.. There is no contract, any form of agreement is only through text messaging.

3. The landlord, father A essentially gifted the property to son B. The property is registered under son B's name.

4. A and B are both out of the country. C is in the country and the apartment is his second address, he pops by every month or so for a few days.

5. Both D and E pay C for rent (manual monthly bank transfers with no direct debit, no set time in the month)

6. B takes cares of both the council tax AND the bills. A/B had agreed to pay our council tax for D/E, and B pays the bills. We transfer what B pays to C.

7. Neither A, B, C, D, or E are on the electoral roll on this address. However, past residents at this address that B/C knew may still be registered here.


Now here's the thing:
1. Strictly speaking, is our arrangement a valid form of tax avoidance (and not evasion)?
B is the landlord. He is out of the country. The flat is considered to be empty from a legal standpoint. His brother C lives here from time to time along with D and E who occupy this regularly.

Regarding rental income- again, B is receiving nothing and B/C are separate legal entities. We pay C. So B, the landlord is getting nothing, and he is paying the full council tax bill.

2. Even though clearly D/E are liable for the council tax per the hierarchy (freeholder>leaseholder>occupier>landlord), is it possible for A/B to pay it on behalf of D/E? (The council is receiving the exact amount of money, and neither of us are claiming student discount/single occupancy etc.) The council tax bill is the full amount and is paid to the council direct. I see no difference between D/E paying the council tax and we take it off the rent to C (landlord's family pays the same), unless of course, this flags up the rental income issue, but aren't we shielded because we are not paying to B, but to C?

3. Does C's situation of being a brother of B/son of A and having a semi-permanent residence at the property have any bearing to this case, so effectively, he/his family are liable to pay the council tax anyway?

4. If we are indeed in the wrong for #2, can A/B reach out to the council and reclaim what they have paid, then D/E pay the same amount back to the council? (Again, the council gains nothing and we can juggle the money between C/D/E)

5. Am I safe to get on the electoral roll?

Please let me know if anything is unclear from this.

Thanks

es5595

The full council tax is paid, so the number of people at the property are irrelevant. I imagine that unless A, B and C could prove a permanent residence elsewhere, the property is liable to be counted as their main residence.

I also imagine (assuming that between D&E you are paying under £7500 a year) there is no tax due as the income is under the rent-a-room scheme

Yes, you should definitely be on the electoral roll (especially with an election coming up!), and previous lodgers should be removed if they are still present on it.

pouletnuggets

A B and C have a home overseas and are not British Citizens so there should be conclusive proof that they have permanent residence overseas.

Unfortunately, between D & E we do breach 7500 PA, but the amount we pay jointly is more or less the tax free income allowance for an adult (just under). Given that A/B live overseas (they have nil taxable income, they do not collect rent elsewhere) and C is a student, they could claim their entire allowance with this?

00ec25

pouletnuggets wrote: »

A B and C have a home overseas and are not British Citizens so there should be conclusive proof that they have permanent residence overseas.

Unfortunately, between D & E we do breach 7500 PA, but the amount we pay jointly is more or less the tax free income allowance for an adult (just under). Given that A/B live overseas (they have nil taxable income, they do not collect rent elsewhere) and C is a student, they could claim their entire allowance with this?

you should have said that to start with.

please expand on what you mean by C lives there occasionally?
where does he live when he is not at your place?

Based on the extra info you have now given, C appears to be a resident LL to whom you pay rent.
D&E appear to be lodgers of C
A&B are non resident, so have no claim whatsoever to the rent a room allowance. Only C has that

You state the total rent paid is >7,500 so the excess is indeed taxable. However, do you know the full financial circumstances of C, bearing in mind he is a student and may not have total taxable income from all sources in excess of his personal allowance?

if he does, and you know, then REPORT HIM
https://www.gov.uk/government/organisations/hm-revenue-customs/contact/reporting-tax-evasion

As it is an HMO, D&E have no liability for council tax, that rests with the landlord because it is defined as a council tax HMO (which is not the same as a housing law HMO) becuase there is a resident LL and lodger(s)

You state you are all related/friends so why not all come clean and stop trying to live under the radar. It appears to be the main home of D&E so they both have a legal duty to register on the electoral roll at that address.
C is not required to register as he is not a UK citizen and has no permanent home in the UK, so no right to vote (not that is really any of your business)
A & B are irrelevant.

pouletnuggets

Yes, I must admit the property being legally empty but we are lodgers is absolutely genius wording. I was more alluding to this: I misused legally rather than officially. Officially this flat is a ghost flat as no one is on the electoral roll although there are obviously physical occupants!

My clarifications to your questions:

B can be considered to have left the country permanently as he has no ILR/BC or have plans to come back in the future. If anything, B is the least involved in the day to day flat situation even though he is the legal owner, even more so than A.

C is not acting as an landlord agent on behalf of B in the traditional sense, as I report issues (e.g. water leak) directly to A (the father). C does participate in the rent collection. C is a good friend of ours (both D&E) and comes over to stay whenever he needs to be in the area, but he is a student in a different city. There is a spare room for C that D&E never use.

D&E are separate households if not made clear already. This is a 3 bedroom flat where C, D and E each have one bedroom. C&D share a toilet, and the 3 of us share a kitchen.

I'm glad you brought up HMO. I've had a read through the subject previously but it seems that the property needs to be registered as a HMO to qualify. I'm not sure if it had been done.

Your points:
1. If this is true then we are done. I suppose it need not matter who 'the landlord' is, so long as the council tax is paid?

2. I can tell you C is definitely not the landlord. His name is not on the legal papers and the only 'job' he does is collect rent, and he doesn't even chase (D&E pay the arrangement in a satisfactory manner).

3. You are referring that suppose B is the true landlord and C does not qualify to be the landlord, the incidence of CT would still fall on them because it is an HMO?

EDIT: this is a response to your edited post:

C has a 'permanent home' (college accommodation) in a different city. If that was discounted, this would be the permanent home. The important note is that C does not own the property. B does.

I would say the most appropriate one line description would be "A buys a flat for B, B lets C to live in for free while also letting it out to D and E". So the landlord role, would most definitely go under B, even though he does little in the day to day management.

What I'm trying to say is can we spin to to say C is getting "Free income" from D&E randomly transferring money to him every month, while B is getting absolutely nothing from it from a bank transaction/legal perspective?

00ec25

pouletnuggets wrote: »

I would say the most appropriate one line description would be "A buys a flat for B, B lets C to live in for free while also letting it out to D and E". So the landlord role, would most definitely go under B, even though he does little in the day to day management.

What I'm trying to say is can we spin to to say C is getting "Free income" from D&E randomly transferring money to him every month, while B is getting absolutely nothing from it from a bank transaction/legal perspective?

ok it is clear you do not really understand the interrelationships between housing law and tax law. No you cannot "spin it". You can try and understand the actual legal position, so you are clear on who is liable, although why that concerns you so much is a mystery.

under tax law, a property is a council tax HMO if it is occupied by more than one household where at least one of those households pays rent. So, clear cut in your case, D & E pay rent, it is a tax law HMO meaning the landlord is the only person liable to pay CT.

B is not resident in the UK. B is the legal owner, BUT for tax law purposes he does not receive the rent. In his personal case that makes sense because as on oversea alien his UK tax position would require him to follow some very specific "non resident landlord" rules.
It appears therefore they have, quite legitimately, avoided that situation by having C collect the rent and C is your landlord for tax purposes.
C has a room in the property and, crucially, it appears to be his main home (in the UK) when not at college. There is some grey to that because obviously he is not resident in the building full time, so under tax law he may struggle to show he is entitled to the rent a room allowance as it is not his full time home.

under housing law he has access to the property, has use of his "own" room in it, but it is not his full time home. The property is without doubt occupied by 3 households and that without doubt makes it a housing law HMO (the definition is different to a tax law HMO). However, C is not resident in it, so, on paper, C cannot be called a resident landlord and therefore you cannot be lodgers. Instead, in housing law terms, you appear to be tenants in an HMO, where the third household with exclusive use of a part of the building is only occasionally present. Nonetheless, under housing law it is not a house "share", it is an HMO because C, D & E each have their own parts of the property.

Therefore, if you are tenants, C cannot, under tax law, be classed as a resident landlord, and so cannot claim the rent a room allowance. C would be liable for UK tax using the normal rental business method: rent - expenses = taxable profit. One of C's expenses being the council tax, as it is a CT HMO

In summary it is my view you have a complete mess and should report the whole thing to HMRC

- you said at the start there is no contract covering your "occupation" of the property
- the fact B is the name on "the legal papers" is irrelevant
- C is your landlord because you pay the rent to him and he could very easily argue he has permission from B to get C's own tenants in the property
- you are tenants (not lodgers)
- C cannot claim rent a room allowance for tax purposes as he is not resident
- the fact C does not own the property is irrelevant for tax law purposes as he is the one physically receiving the rent

pouletnuggets

Hi 00ec25

Thanks for your comments, points taken.

So it seems like the council tax problem for D&E is sorted, but the income tax is perhaps not (For A/B/C)

The situation of C is still to be contested and is unknown if being a partial resident or not being one puts him in a better position.

Please examine these other hypothetical scenarios though:
Suppose A is B's father and B is an adult child. A buys a property and 'rents' it to B. B pays A rent. However, B is struggling with income such that he still needs support from A. A decides to give some gift money to B monthly to support his life.

A and B think this through and realise this is stupid, why not B pays A no rent such that B only needs to care about the living expenses and bypass the taxman entirely as A gets no rental income<< This is surely not tax evasion or even avoidance? Just common sense?

Now this:

A/B/D know each other. A supports adult child B and owns property X. Adult child B needs money for education. A rents out property to D.

A, B and D think this through and say wait a minute, isn't it easier if D just pays B?

D pays B's expenses and A receives no rental income <<< Is this not in the same vein or because there is a net transaction between households, the same cannot be applied as above?

Will regroup and figure out the next steps. Math has been done and it might turn out that the net income is below allowance so all parties may be in the clear suppose rent a room is considered (After consideration of council tax, service charge, gas and heating and personal allowance)

Harry1116

Hello I’m now a landlord renting out 1 room to a tenant in a different house and they get universal credit as they are unwell so get help with paying rent but is it the tennant who pays the council tax or is it me that pays it? They have a tenancy agreement for a room and access for all rest of house and they are the only person that lives there? 
Thanks for any reply’s 

oldbikebloke

Harry1116 said:

Hello I’m now a landlord renting out 1 room to a tenant in a different house and they get universal credit as they are unwell so get help with paying rent but is it the tennant who pays the council tax or is it me that pays it? They have a tenancy agreement for a room and access for all rest of house and they are the only person that lives there? 
Thanks for any reply’s 

since you are careful to state it is a room with access to the rest of the house then clearly someone else is involved with the property. if that someone else is you, then you learn the difference between an HMO for council tax purposes, and an HMO for housing law purposes as the definitions are very different.

Gut reaction from the little you have said, you have a council tax HMO and therefore legally, the ONLY person liable to ALL the council tax is YOU.