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

padlilly115

The imposed market rent point is coming from a corporate tax perspective - when you have a company charging below market level to a related party HMRC can impose additional income for tax purposes to bring it up to "arm's length" and resulting in a dry tax charge (i.e. a tax charge against no real income) - this will not be applicable to you assuming you will be subject to income tax.   There are also some considerations when it comes to capital gains tax but again that is not applicable here.  It might be that you IFA is getting confused with those provisions.  

For income tax the relevant manual is here: https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2130  - essentially they allow you to deduct your expenses up to the rental value.  The reason for this is to stop you accumulating losses that you could carry forward and offset against future rental profits.   So basically, you can charge rent as you like, but provided you have expenses up to the amount of rent you charge, you will generate neither taxable profit (so no tax due) nor any tax losses.

oldbikebloke

Flugelhorn said:

greatcrested said:

Flugelhorn said:

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. 

If someone else pays bills in your name on your behalf then, in tax terms, you have received a "Benefit in Kind" and will be taxed on its value, since you now do not have to pay out money that you would otherwise have spent.

The maintenance charge falls against your name as it is your liability as the property owner. So her paying it is a benefit in kind for you taxable at your relevant income tax rate (20%, 40% etc)

There are 2 ways to avoid that:

a) you declare the money paid by her as "rent" and you offset that by the value of the bill. Zero profit, so no tax to pay.
Also, unless you are already required to submit a tax return, then assuming the amount invoiced is <£2,500, you would not automatically be required to do a tax return, however, you are still required to notify (phone or letter) HMRC that you have let a property and are receiving (gross) rent of £x
or 
b) As the criteria is: bill in your name, change who is labile for the bill. For example, if the utilities bills are swapped to her name then obviously you "save" money by not having to pay them and they are not your liability/accounts, so no benefit in kind. I doubt though that the the maintenance charge can be changed without a change in property ownership, which is of course not the point.
The  position re council tax is moot, as technically she is the occupier, so by law she has to pay it. However, if she is occupying it for free, and it remains your second home, then the fact a member of your family is in occupation does not automatically change the liability over to the occupier.

greatcrested

Flugelhorn said:

greatcrested said:

Flugelhorn said:

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. 

Exactly. It's called 'rent', whether it's paid direct to you, or to your mortgage lender, or your feeholder/management company, or indeed to your builder who's erecting a new extension.......

Be careful about trying to get round either HMRC regarding rent, or other authorities regarding other landlord responsibilities.....

oldbikebloke

Mickey666 said:

So how does this 'connected person' thing work with adult offspring living in the parental home at a below-market-rate?  Surely the  taxman cannot tax the parent(s) on the basis that the offspring 'should' be paying a market rent?  Or does any 'assumed' rent only apply to expenses being claimed - which of course in the case of the parental home would not be relevant anyway?

you have totally misunderstood the point, there is NO ASSUMED market rent 

as explained in several posts already in this thread, the costs are reduced in line with the "discounted" rent so the landlord will end up with either a profit (and pay tax on that as normal) or will have zero profit (no tax)
What the LL cannot do is claim a loss because the costs are > rent. 

unkle

oldbikebloke said:

Mickey666 said:

So how does this 'connected person' thing work with adult offspring living in the parental home at a below-market-rate?  Surely the  taxman cannot tax the parent(s) on the basis that the offspring 'should' be paying a market rent?  Or does any 'assumed' rent only apply to expenses being claimed - which of course in the case of the parental home would not be relevant anyway?

you have totally misunderstood the point, there is NO ASSUMED market rent 

as explained in several posts already in this thread, the costs are reduced in line with the "discounted" rent so the landlord will end up with either a profit (and pay tax on that as normal) or will have zero profit (no tax)
What the LL cannot do is claim a loss because the costs are > rent. 

Believe you can if owned within a Company.

Flugelhorn

Mickey666 said:

Flugelhorn said:

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 

Why not just buy the flat in daughter's name, ie as a gift?  No complications with HMRC over rent etc and no practical issues with IHT assuming you would have left the money to her anyway in your will.

Ultimately will hand it over, but for various reasons not just yet - one step at a time into the big wide world, we have had problems before.

Flugelhorn

oldbikebloke said:

Flugelhorn said:

greatcrested said:

Flugelhorn said:

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. 

If someone else pays bills in your name on your behalf then, in tax terms, you have received a "Benefit in Kind" and will be taxed on its value, since you now do not have to pay out money that you would otherwise have spent.

The maintenance charge falls against your name as it is your liability as the property owner. So her paying it is a benefit in kind for you taxable at your relevant income tax rate (20%, 40% etc)

There are 2 ways to avoid that:

a) you declare the money paid by her as "rent" and you offset that by the value of the bill. Zero profit, so no tax to pay.
Also, unless you are already required to submit a tax return, then assuming the amount invoiced is <£2,500, you would not automatically be required to do a tax return, however, you are still required to notify (phone or letter) HMRC that you have let a property and are receiving (gross) rent of £x
or 
b) As the criteria is: bill in your name, change who is labile for the bill. For example, if the utilities bills are swapped to her name then obviously you "save" money by not having to pay them and they are not your liability/accounts, so no benefit in kind. I doubt though that the the maintenance charge can be changed without a change in property ownership, which is of course not the point.
The  position re council tax is moot, as technically she is the occupier, so by law she has to pay it. However, if she is occupying it for free, and it remains your second home, then the fact a member of your family is in occupation does not automatically change the liability over to the occupier.

Thanks for info - presume (a) has the risk that unless is a market rate for the rent then only a proportion of it would be allowed as expenses? (as per the original theme of this thread) - I do do a tax return, mainly because HMRC couldn't get my tax codes right in my 4 jobs to take enough 40% tax (ugh) - now I am retired they might start getting it right. 

[Deleted User]

What a load of old nonsense being banded about. I dont have time to read if someone got the answer correct. 

A private landlord can charge what ever rent he likes. There are no tax implications. 

The landlord however can only claim expenses up to the value of the rent charged. If his expenses cost more than the rent he charges and that creates a loss HE CANNOT CARRY THAT LOSS OVER to deduct from the rent profit in other years or on other properties. That property stands alone 

Thats it