Advice please Renting to parents

creditcard123

Hi
looking for some advice please. My husband and I purchased a BTL property over 5 years ago to subsidise our pensions when we retire. It has been rented out ever since until my parents asked if they could move in as my mother has health issues and couldn’t manage the stairs in their flat . We agreed and gave notice to our tenants and they moved in in February. The problem is they are not paying rent (We said we would sort it out when they sold their flat) and we have lost our rental income and are still paying our BTL mortgage. Their flat is due to be sold next month.
They have said to pay off our mortgage on flat with some of the proceeds but I am not sure what this will be classed as. Will it be rental income For lifetime or early inheritance. Does anyone have any advice on what would be best option. We do not want to sell property to them as it is ideal location and the tax implication would be too high as we would make a large profit because of renovations we completed when we purchased it.
My parents are both 81 and I have brothers and sisters who are included in their will for inheritance.
Thanks for any ideas/ advice anyone has

csgohan4

as always never a good idea to mix family and money, suggest get the whole family together and discuss this to avoid any misunderstandings.

Ensure you charge market rent as anything else your subsidising and losing money on your business,

Of course if you want to them to live rentfree, then you need decide if you want more remuneration on the inheritance or happy to have it this way and not expect anything back. 

For your parents to give away their money now, it may fall foul of deprivation of assets if they require state care in future

dimbo61

You need to charge them the same rent as your last tenants.
They need to have a AST and all the other requirements of being a good Landlord.
If they have outstanding rent this needs to be paid once they sell the flat.
Did they pay a deposit ? Have you protected the deposit ?
GSC, EPC, EICR, ???
The family can't argue if your charging market rent and you have long term tenants plus your parents have a nice home and money to enjoy life if they can 

greatcrested

you have a BTL mortgage on the property? Are you sure your mortgage terms permit letting the property to family? Unlikely.....

What are the terms of the tenancy agreement with your parents?

ElephantBoy57

creditcard123 said:

They have said to pay off our mortgage on flat with some of the proceeds but I am not sure what this will be classed as. Will it be rental income For lifetime or early inheritance. Does anyone have any advice on what would be best option.

Ask your parents if its a gift or part of your inheritance? If you get along with your brothers/sister, talk to them.

Comms69

Well some of it will no doubt be backdated rent. 

Any gift is tax free, but could be part of any calculation for inheritance tax for up to 7 years

tacpot12

Is the amount going to be enough to clear the BTL mortgage? If not they will still owe some rent at some point in the future. It would be as well to talk to them and your siblings about what they will do to pay any future rent that is due. 

If any money is given to you as a gift (i.e. the early inheritance route), I can see HMRC arguing that it was a payment of rent (and that income tax is due on it) as your parents have not paid rent for the home they live in. You would have paid tax on the rental income from other tenants and factored this into your decision to BTL, so presumably paying tax didn't affect the financial justification for the purchase. The obvious thing to do is treat the capital payment as rent. You could give them a discount for early payment as it will save you interest on the BTL mortgage if you use the money to clear the mortgage. But you also need to consider what will happen if something happens to your parents and they can't live in the property as long as they have paid rent for. You should perhaps plan to return some money to their estate to be distributed between your siblings. Or they keep their money and use it to pay rent when the rent is due each month. This is much the simplest option, they pay you the back rent they owe you as a lump sum, and then pay the rent as it is due each month. 

creditcard123

We have all the landlord certificates we require by law to rent out the property. We have no formal agreement with parents they just asked and we said yes and moved them in. With COVID-19 everything came to a standstill and Their property should be sold end of next month. 

I couldn’t charge them the rent we were getting previously as Our property was aimed at professionals and our rent was higher than other properties in area because we refurbished it to high standard.
Thank you for your advice I have spoke to rest of family who have said I should just sort it out and let them know what we are doing. We also need to decide where money from proceeds of sale are going as parents want it put away as inheritance but I do not think it is as easy as that. My parents have never had mortgage as saved and bought their property in 1967 with cash, they do not understand anything about tax and keep telling me to deal with it, but I am at a standstill as not sure who would be best person to advise on these matters. 

I am not even their a POA 2 of my sisters are but neither want to deal with the money aspect.

My go to person who would always have advised me on tax and money matters sadly died in May.

Mojisola

creditcard123 said:

I have spoke to rest of family who have said I should just sort it out and let them know what we are doing.

This is the kind of things that gets said in families until someone decides to object to what was done!

Whatever you do needs to be agreed and put in writing.  If you are getting a lump sum in lieu of rent, make sure that isn't considered an early inheritance by your siblings. 

The two attorneys should definitely be kept in the loop - if they don't want to get involved in money matters, why are they your parents' attorneys?

Comms69

creditcard123 said:

We have all the landlord certificates we require by law to rent out the property. We have no formal agreement with parents they just asked and we said yes and moved them in. With COVID-19 everything came to a standstill and Their property should be sold end of next month. 

I couldn’t charge them the rent we were getting previously as Our property was aimed at professionals and our rent was higher than other properties in area because we refurbished it to high standard.
Thank you for your advice I have spoke to rest of family who have said I should just sort it out and let them know what we are doing. We also need to decide where money from proceeds of sale are going as parents want it put away as inheritance but I do not think it is as easy as that. My parents have never had mortgage as saved and bought their property in 1967 with cash, they do not understand anything about tax and keep telling me to deal with it, but I am at a standstill as not sure who would be best person to advise on these matters. 

I am not even their a POA 2 of my sisters are but neither want to deal with the money aspect.

My go to person who would always have advised me on tax and money matters sadly died in May.

Which country is your property in? 

> We also need to decide where money from proceeds of sale are going as parents want it put away as inheritance but I do not think it is as easy as that. 

What do you mean it's not as easy as that?? Put it in a bank, box or under the mattress, there's no tax to be paid on it. 

creditcard123

Thank you for all your comments
I have spoke with bank about our mortgage and as long as we are not applying for New mortgage deal (our discounted rate ended in June currently on variable rate) we can stay as we are.
The easiest solution for us is for my parents to pay a monthly rent but as they have never paid rent or a mortgage they do not want to do this.
My parents chose my two eldest sisters as POA I am the youngest.
If I work out the lower rate of rent for area and pay off our existing mortgage then the rent would be paid for 4 and a half years, so I would be forfeiting my inheritance for rental income which I would be taxed on which we expected to be anyway. I think this would be way my siblings would view this and I am ok with this, I just don’t want to be out of pocket for property, I do not care about inheritance.