I am Buying a house, then renting it back to the seller

terrymoneysavingexpert

Hi
Thank you all again.
My latest idea would be to buy the property at a discounted price, but enough to pay off the existing mortgage.  Then let the seller live in the house rent free.
Would I be breaking any laws if the person did not claim housing benefit?
thanks 

p00hsticks

terrymoneysavingexpert said:

Hi
Thank you all again.
My latest idea would be to buy the property at a discounted price, but enough to pay off the existing mortgage.  Then let the seller live in the house rent free.
Would I be breaking any laws if the person did not claim housing benefit?
thanks 

I don't believe you;d be breaking the law, but the seller's going to end up with a sum of money from the sale which could mean that they are no longer eligible for benefits - UC is means tested. 

Also, I think if trying to claim in the future when the proceeds are depleted, DWP may turn round and query why they accepted a discounted price for the property, if they could have got much more by selling on the open market.

terrymoneysavingexpert

Hi
So if my friend sold it to me for a discounted price.
I allowed her to stay in the property rent free for 5 or 10 years.
She agreed to pay her own repairs.
And she did not claim any benefits just lived off her pensions.
And we drew up an agreement to do all this.
Would we get into trouble with the FCA or the DWP?
thanks Terry

Barny1979

Clutching and Straws comes to mind with this thread

terrymoneysavingexpert

Hi
Yes clutching at straws is what I am doing.  I am just trying to let an old lady stay in the house where her 12 cats are buried.
Thanks Terry

bolwin1

terrymoneysavingexpert said:

Hi
Yes clutching at straws is what I am doing.  I am just trying to let an old lady stay in the house where her 12 cats are buried.
Thanks Terry

And there's nothing wrong with that at all. Sometimes people forget everything isn't about money. I hope you find a way to help your friend, although I suspect it won't be easy. 

tim_london

terrymoneysavingexpert said:

Hi
So if my friend sold it to me for a discounted price.
I allowed her to stay in the property rent free for 5 or 10 years.
She agreed to pay her own repairs.
And she did not claim any benefits just lived off her pensions.
And we drew up an agreement to do all this.
Would we get into trouble with the FCA or the DWP?
thanks Terry

Not with FCA or DWP but now you're in trouble with SDLT, CGT and inheritance tax.

When you buy the house it have to be at market value for tax purposes.  Your friend can 'gift' you the balance owed, but that only complicates the tax bill.  

• Your friend will be liable for Capital Gains Tax based on the delta of the house when she bought it vs what it is worth today.  
• If the market value is above the SDLT threshold then you need to pay it.
• If your friend dies within 7 years then the 'gift' can be liable to inheritance tax, and that is out of your pocket if your friend doesn't have more estate to cover that.

getmore4less

tim_london said:

terrymoneysavingexpert said:

Hi
So if my friend sold it to me for a discounted price.
I allowed her to stay in the property rent free for 5 or 10 years.
She agreed to pay her own repairs.
And she did not claim any benefits just lived off her pensions.
And we drew up an agreement to do all this.
Would we get into trouble with the FCA or the DWP?
thanks Terry

Not with FCA or DWP but now you're in trouble with SDLT, CGT and inheritance tax.

When you buy the house it have to be at market value for tax purposes.  Your friend can 'gift' you the balance owed, but that only complicates the tax bill.  

• Your friend will be liable for Capital Gains Tax based on the delta of the house when she bought it vs what it is worth today.  
• If the market value is above the SDLT threshold then you need to pay it.
• If your friend dies within 7 years then the 'gift' can be liable to inheritance tax, and that is out of your pocket if your friend doesn't have more estate to cover that.

CGT would be Zero if the friend had been living there.  PRR  relief applies.
SDLT is on consideration not market value so just the mortgage to take into account.
IHT unlikely unless the gift exceeds the nil a rate band(which the gift will use up first) which means an expensive house before there is any IHT to worry about by the person getting the gift.

greatcrested

terrymoneysavingexpert said:

Hi
So if my friend sold it to me for a discounted price.
I allowed her to stay in the property rent free for 5 or 10 years.
She agreed to pay her own repairs.
And she did not claim any benefits just lived off her pensions.
And we drew up an agreement to do all this.
Would we get into trouble with the FCA or the DWP?
thanks Terry

That would be rent in kind. Instead of paying you rent and you paying for repairs, she is paying the repairs direct.

That is rent so far as HMRC (and other authorities) are concerned.

Soyou are back to being a landlord.......

macman

Which means complying with all the statutory and regulatory requirements, and you must declare the income for tax purposes.