Advice on being Named Landlord/Mortgagor

AskAsk

konn1ch1ha said:

AskAsk said:

konn1ch1ha said:

AskAsk said:

so your stepdad will give you money to pay your deposit.  he will then move into it along with his mate.  his mate will pay you rent, what about your stepdad, is he also going to pay you rent?

i assume you won't be living there yourself.

1. Yes
2. Yes
3. Yes
4. He won't be paying rent
5. I won't be living there

if he is in his 70s, then there is a high likelihood that he will pass away within the 7 years rule for inheritance tax on gifting.  if he lives there rent free then the tax man will consider that you have been fraudulent and not declared his rent, as effectively you could argue, he paid you the rent in advance as the lump sum to pay the deposit 

How can I not declare his rent when he won't be paying rent? Surely the declaration should be made on a tax return when he gifts the deposit?

i have never been given a gift so i don't know if you are required to tell HMRC when you receive the gift.  people who have had gifts to buy properties that I know haven't done so.  i don't think you need to declare it until an event happens, like the person who gave the money away died and their estate is assessed for inheritance tax.

he may not be paying rent physically, but HMRC may think you are trying to pull a fast one as he is paying all the rent up front in one lump sum and you are using that to buy the flat and let him live in it for free.  it is then not really a gift as he has an interest in it.  a gift is when you give someone money to do what they like and you do not benefit from it in my opinion, but i would guess this is the standard definition of a gift.

oldbikebloke

konn1ch1ha said:

What does PET mean? 
I'm confident the carer/tenant will be paying rent efficiently as he'll be DSS. I can't see the property being HMO and will be solely for "unofficial stepdad" Fred and carer.
I do own my own flat which I rent out. What does SDLT mean?

It will only be Fred and carer. I plan to buy somewhere with my wife separately and completely unrelated to this question.

you have a lot to learn

Fred will be living in a property which his money has partly funded but it appears he will not be a co-owner of the property, nor will he be paying rent. Earlier posts that refer to PET have missed the significance of the fact Fred will be living in the property that his own money partly funded. Therefore it cannot be a Potentially Exempt Transfer (PET) since he continues to receive a benefit from having made that gift. The 7 year rule will therefore not apply, and the value of the gift will remain part of his estate until either he dies whilst living there or he ceases to live there and lives somewhere else (that you do not own) - that does not include a care home. As such his deposit money is a Gift With Reservation (GWR) of benefit. 

That said, there is also the risk that instead of treating the gifted deposit as a GWR, Fred's tax status is instead treated as Pre Owned Asset Tax (POAT) - he gave away some of his own money (ie. "pre owned") but he continues to benefit from that as he lives in a property rent free that his own money part paid for, even if he is not a legal owner of the property.  This is all about trying to avoid inheritance tax by "giving" away your wealth to "family" before you die. As you'd expect, the tax system has been designed to close as many of those loopholes as possible. If the gift is not treated as a GWR, there is a very strong chance it will be a POAT. The only way to avoid a POAT is for him to pay you the full market rent for the property - if he lives there rent free he (not you) will be charged income tax by HMRC for the "benefit" he gets from living rent free having handed down money to avoid inheritance tax.

you say the friendship is long standing - is the friend willing and able to be carer for someone with Parkinson's? I assume to an extent (s)he already does so, but the condition is, as you known progressive, and if the friend is of same age can they physically undertake care duties for a 70+ man with Parkinson's? Yes the carer's rent will be paid by benefits (it is not "DSS", that ended decades ago, it now called universal credit) and there is no problem with that as there is a genuine "arms length" position between you as his Landlord and the carer as the benefit claimant. But what happens if the position is reversed and the friend is the one ill and needs to go into care, what happens then when friend's rent stops coming to you but stepdad wants to carry on living there rent free?

I note Fred's status is as your mother's ex, I presume from use of "unofficial" she never married him, so he is not your "legal" stepdad in that sense. Therefore if Fred needs to claim benefits, the fact he gave away his money to you may (can't say for sure will) be taken into account when assessing what he can claim. The fact he continues to own his old flat, which he not longer lives in, will certainly mean he will fail a means tested benefit test as he has more than £16,000 capital to his name - he has a whole flat he can sell!

you state you will be the owner, but the mortgage position is uncertain. yes there is a cash deposit, but you will be the legal owner of the property so you will have to be on any mortgage used to fund purchase. Stepdad will be resident, but he part paid for the property even though he will neither be owner, nor by the sounds of it, on the mortgage. So your choice of lenders will be much reduced as that is a situation many run away from.

You state you currently let ("rent out") your own flat yourself and plan to buy a family home in due course. So where are you living now then? Any mortgage on stepdad's will therefore be a "second" mortgage for you. The additional fact of stepdad's residence may (not will) mean it is a regulated buy to let mortgage whose criteria is based not on the rent received from friend, but wholly on can you personally afford two mortgages on your income. Therefore it seems you are going to have a lot of mortgage debt by the time you have 3 properties in your name with 2 of them, family home plus stepdad's, likely based purely on your personal income excluding rental income.

SDLT is Stamp Duty Land Tax - the tax you pay when you buy a property. If you really don't know what that is, then google it, because that is such a basic aspect of property that you are wasting people's time if you really haven't got that far in researching what you are doing with letting and property. Note the rules around "additional" property - you will fall into those 

Annisele

Everything oldbikebloke said above (except that I'm not sure inheritance tax will be an issue - if Fred had enough money to worry about that, he might be buying outright in his own name).

Another thing to think about is the possibility the whole arrangement might be viewed as a contrived tenancy, based on two things. One, OP plans to buy the property and have Fred's carer's benefits pay the mortgage. Two, OP plans to sell the property should Fred's carer ever move out. That *looks* very much as though the point of the whole affair is to get Fred's carer's benefits to pay for OP to have a house - and if it is seen that way, it could put Fred's carer's benefits at risk.