Best way to share cost of holiday home with family?

IdéeFixe

I have an opportunity to buy a second home for myself and family (siblings, parents) to enjoy. Fortunately I can get a big enough mortgage myself, so no joint applications necessary. The others are willing to contribute in some manner, since they will have use of it.

This could happen a few different ways:
- gift me money towards the deposit
- take care of some of the household bills (council tax, energy, internet, insurance)
- monthly contributions towards the mortgage repayments (which should be in the region of £500-700 pm)
- pay for one-off expenses like furniture or renovations

What I’d like to avoid is breaking any tax rules or incurring unnecessary taxes. What would you suggest we do?

TripleH

There are 2 chains of thought here :

1. You have a formal setup and agreement (almost like a timeshare but without the sting) where you agree how it will run in advance and keep formal records and allocate time based on shareholding. This is best for minimising arguments down the line but is more faff to setup and run (unless you don't have bookkeeping experience).

2.You operate on an as and when bills need paying, simpler to do but harder to run if things go wrong.

To me option 1 seems the better option but that's me. There is always the risk of someone using such a property more than the share they have paid for.

sheramber

Are they going to contribute in equal shares or according to how much use they make of it?

 

daveyjp

Do they expect part ownership from the arrangement?

canaldumidi

As asked above, you need first to consider ownership. As the mortgage will be in your name, so will (almost certainly) the Land Registry title. Thus if you were to die for example, then the property would be part of your Estate, and subject to your will (if any). Your siblings etc would have no ownership rights - is that OK with everyone?

Similarly (and this may seem far-fetched!) if you were to divorce,your ex could make claimson 50% of theproperty and your siblings etc would have no protection.

Of course that is all worst-case, and probably a bit too extreme, but worth being aware of the implications.

Whatever solution to decide on,it is worth discussing/agreeing what would happen in various scenarios. What if one or more of you falls on hard times and wants to sell/get their contribution back etc?

As for your actual question, my own approach would be to agree what proportion each person will 'own' (though see ownership above). Assuming equal shares (ie 4 people each owning 25%), then I would spread all costs equally so

* the other 3 gift you 25% of the deposit

* all 4 of you pay 25% each of the mortgage payments

* utilities, maintenance, renovations split 4 ways

You might have to consider/agree whether those with partners count as 2 people or 1 household.

For practical purposes, one person (you?) could pay all bills etc, and keep accounts, then at the end of each year present the various costs and settle up between you.

If you decide on unequal shares eg because some of the family are better off than others, it gets more complicated, but worth clarifying/agreeing. As suggested above, another approach would be to 'charge' family either a fixed amount each time they visit (holiday rental) or a proportion of he overall costs based on how much use they make of the property. Problem is if 1 person/family decides not to use it after a year or 2, what happens?

I would certainly document whatever you decide.

I don't see tax as an issue. Obviously there will be

* the 3% 2nd property SDLT on purchase, whatever you decide

* Capital Gains Tax if the property is sold - though joint ownership would allow each owner to use their personalallowance, and

* Inheritance tax on death (again perhaps a reason to consider joint ownership).

theoretica

You say your family are 'willing' to contribute - but are they keen and enthusiastic or being carried along by you?

Another simple route would be for you to buy it and run it as a rental place, with your family often being the ones to rent it.  Ownership is clearly with you, and if your family lose enthusiasm you can replace their contribution by renting to other people.

IdéeFixe

Thank you all for your responses.

I think everyone is enthusiastic. We all had occasional use (for free) of another relative's holiday home in the past and have many fond memories of that. From my perspective, rather than have money pile up in the bank I'd much rather invest it in property and get utility from the property for myself and others. I work full time but my parents and many relatives are retired and would have more free time to enjoy the home. Also, it would be my parents making the most significant contribution, and they have contributed to other siblings' finances in the past, so there is informally already money set aside for this.

I could envision an arrangement like
- I pay the deposit and stamp duty / lbtt, perhaps boosted by some gifts or informal loans from others
- I pay the mortgage as sole owner, the energy bill, and the insurance
- parents pay the council tax bill
- a sibling could pay the internet bill
- another relative could pay the TV license
- repairs/maintenance I share with parents
- maybe ask other people who stay to pay something towards a cleaning service

I'm just wondering whether with people contributing like that would I have to declare that as rental income (even if they pay directly) and declare for tax purposes? If so then maybe it would be better for me to pay everything in the first instance and everyone else to pay me some agreed amount? This is not something I'm doing for profit and I'm not interested in renting to strangers (although it's great to have that as an option in the future). I just want to get a holiday home for everyone to enjoy and find the simplest way to share some of the cost. There would not be an expectation of shared ownership. Use would be agreed informally rather than on a pre-agreed schedule.

letsbetfair

I'd either go for a formal arrangement, or expect to pay for everything yourself and let other people chip in if/when they're using it. Having a situation where lots of family members have gifted different amounts to the deposit on the expectation of *something*, but no-one is clear exactly what, is a recipe for a falling out! @theoretica suggestion of running it as a rental place could be a good one, even if less tax efficient.

By the way, I've also had stays in a friend of the family's holiday home. It was lovely! From chatting to the friend of the family, though, it sounds like there was a decent amount of work and friction involved in organising the running and using of the place within their family, though. I think I'd rather stay in other families' holiday homes than have my own

london21

I would have a flexible approach so in the future can be offered to the general public as well if need be.
money and family can sometimes be complicated. 

p00hsticks

IdéeFixe said:

I could envision an arrangement like
- I pay the deposit and stamp duty / lbtt, perhaps boosted by some gifts or informal loans from others
- I pay the mortgage as sole owner, the energy bill, and the insurance
- parents pay the council tax bill
- a sibling could pay the internet bill
- another relative could pay the TV license
- repairs/maintenance I share with parents
- maybe ask other people who stay to pay something towards a cleaning service

This sounds like a nightmare to organise!

If you are going to do it then I'd suggest you have all the bills in your own name. Set up a bank account specifically to pay all the the bills and expenses related to the home and them your relatives pay an agreed amount into that account, perhaps according to when they use it as letsbetfair suggests. I'd suggest that you are effectively going to be renting out the property to them whether they pay you directly for the time they are there or indirectly by paying particular bills - I'm not sure HMRC would see it any other way. 

If it's going to be available to others for at least 140 days a year then I'd suggest investigating whether it is actually beneficial to run it as a formal holiday let, even if you are only allowing friends and family to use it. There are some advantages to doing it that way (for example, if in England, a single holiday let can pay business rates rather than council tax, with small business rates relief reducing the amount paid significantly, even down to zero).

https://www.gov.uk/introduction-to-business-rates/self-catering-and-holiday-let-accommodation

don't expect it to be anything other than a cost though - when you crunch the numbers, I suspect that if you go at it half-heartedly you'll find that overall for you it would be more cost effective and provide more flexibility for people to just rent somewhere when and where they want to go.

Mojisola

IdéeFixe said:

I have an opportunity to buy a second home for myself and family (siblings, parents) to enjoy. Fortunately I can get a big enough mortgage myself, so no joint applications necessary. The others are willing to contribute in some manner, since they will have use of it.

You pay all the costs of buying the house.

If your family want to use it, set a weekly contribution so that everyone pays according to their usage and arrange how the family 'book' their weeks, what happens if it's wanted by more than one group for the same week, etc.

The complicated way you're planning is likely to end up with rows and upset relatives.