Other income question

Jargogle

Hello. I'm looking for opinions on what I should do for the best please. My husband and I recently bought a second property with a second residential mortgage. My parents are living there, which was declared as part of the mortgage application. We are not allowed to let out the property according to the mortgage.

My parents are living rent free now so IF they decided to give me a regular gift (say £450pcm), which does not affect their standard of living, do I need to declare this to hmrc? If I do have to declare it, it's not rent, so what is it? I assume mortgage tax relief wouldn't apply and I'd have to pay tax on the full amount?

[Deleted User]

If it absolutely is a gift and is out of income (not savings) that should be fine. Personally I would adopt a belt and braces approach and a little ingenuity. You should also know that each parent can gift £3000 annually without ANY implications (and an additional £3000 each if no gift last year). 

Can the income be varied e.g. £2000 at Christmas, £1000 on a birthday, anniversary etc etc? - basically anything to avoid any rent connotations.

For you, the recipient, there is no liability to tax and no need for any declaration to HMRC.

Brie

Has the bank outright stated that your parents can't pay rent? Given that they are family?

Obviously you might expect them to maintain the place and they might then pay for your gardener as well as their own or similar?  Not sure how far you might get if they tried to pay your bills - electric and gas and water etc?  Might not be obvious if it was from an account you had joint with one of them.  Then again maybe someone would consider that fraud.

Jargogle

Not because they’re family as such, it’s because it’s a residential mortgage. 

Jeremy535897

If your parents are living there, and the bank know that, I would be very surprised if they objected to your parents contributing to the cost of the mortgage. You can always ask them, but if your parents just pay you something a month into your bank account, and there is no paperwork or enforceable obligation on them to do so, why should the bank care?

I would be surprised if there was any income tax issue, if they pay no more than the interest element, although I suppose it is possible now that relief on mortgage interest paid is limited to the basic rate. (Shows how idiotic that particular tax rule is.) I would argue that as the amount is a voluntary and unenforceable contribution to expenses, it is not rent. It would however be worth a word with a solicitor on the matter.

The inheritance tax issue is the other way round. By allowing them to live in your property rent free, you are making a gift to them. Any contribution to the mortgage interest would lessen your gift to them, rather than being a gift from them to you.