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Do HMRC demand we rent a second home at market rate?

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  • Found this for what it's worth  https://www.propertytribes.com/family-member-rent-free-t-127641258.html
    which asks exactly the same question.
    Also, if you were to trawl through this  https://www.gov.uk/hmrc-internal-manuals/property-income-manual  (which I confess I haven't done) you should get chapter and verse about how rents are taxed.  On a brief overview I can't see anything about taxing property income at a "deemed market rent level".

  • Ok wow, thanks @mrschaucer, that really is exactly the same question! I did Google it before posting here earlier today but that didn't come up / I didn't spot it. The basic gist of the Property Tribes thread is that what I've summarised above is true - there's no suggestion that HMRC will claim tax on the market rate of rent for the property - only that charging well below market rate substantially reduces the expenses we can claim against the property (so it could end up costing us money to keep the flat if e.g. the service charges and other expenses are more than the rental income we receive).

    I did have a read through the HMRC manual and - like you @mrschaucer - I couldn't find anything about market rents, so I'm still a bit bemused about why @theartfullodger and this financial advisor we spoke to suggested otherwise.
  • xylophone said:
    Seems clear, and confirms what I'd always assumed.
    The tax is based on your income, not on what your income could be.
    I was offered a promotion at work once, at a higher salary, but turned it down as I didn't want the role. There was no question of HMRC taxing me on what I would have earned. They taxed me on what I actually earned.
    The link is about what expenses can be claimed, which is an entirely different matter.

  • oldbikebloke
    oldbikebloke Posts: 1,096 Forumite
    1,000 Posts Name Dropper
    edited 21 September 2020 at 9:58PM
    the tax implications of letting a property at below commercial market rate relates only to the restriction on the amount of any expenses that are claimed 
    https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2130
    there is no such thing as being taxed on a notional rent just because you let to a connected person at below market rate 

    bear in mind that whilst IFAs have some tax training, they are not accountants, and their knowledge is limited 


  • unkle
    unkle Posts: 338 Forumite
    Part of the Furniture 100 Posts Name Dropper Combo Breaker
    They cannot tell you what to charge, they cannot tax you on income you don't receive.

    What they will do is if you are only charging say 25% of the market rate they'll only let you offset 25% of the expenses, if they notice.....
  • Flugelhorn
    Flugelhorn Posts: 7,307 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    so if I buy flat for daughter, she pays maintenance charge and bills, I don't charge rent and don't claim any expenses against tax then we should be ticketyboo with HMRC. Thanks for the links in this thread 
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    10,000 Posts Fifth Anniversary Name Dropper Photogenic
    Mediummag said:
    Ok - so this is what I was saying before - HMRC won't like it if I rent at below market rate - but the only issue for us is that we won't be able to claim as much on expenses. HMRC will not insist that we pay 40% of the market rate in tax. Just that we can't deduct as much on expenses.

    As I understood it, HMRC would be thinking - "Hey, this flat could generate us £800 per month in tax, but because it's only being rented out at £500 a month, we're only getting £200 a month in tax. That's annoying." But from what you've just posted above, they're not bothered about the lower tax revenue, but rather they just want to make sure that we don't get clever with our expenses that we claim. Is that right?

    Thats how i read it also. Plus, if they really did "force" you to charge market rate then would  there not be a market rate assessment for every property?
    When i let my BTL house to my daughter and when she was absent for a year, a couple of friends for 6 months each, all on "mates rates"  i never had any q's regarding the rate from HMRC. I was maybe charging 50% going rate.
  • so if I buy flat for daughter, she pays maintenance charge and bills, I don't charge rent and don't claim any expenses against tax then we should be ticketyboo with HMRC. Thanks for the links in this thread 
    No. Because if she is paying the maintenance charge then that constiutes rent on which tax may be due. You'd need to declare it in the normal way as a landlord.
  • Flugelhorn
    Flugelhorn Posts: 7,307 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    so if I buy flat for daughter, she pays maintenance charge and bills, I don't charge rent and don't claim any expenses against tax then we should be ticketyboo with HMRC. Thanks for the links in this thread 
    No. Because if she is paying the maintenance charge then that constiutes rent on which tax may be due. You'd need to declare it in the normal way as a landlord.
    Is that right? golly - just trying to help her out while ensuring that there is some contribution to accommodation. Oh well looks like I'll pay the maintenance charge and she can put equivalent amount in a savings account. 
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