Property 'let' to family

Dal_Whinnie

We are looking at buying a property for one of our children and their family to live in. We would not expect them to pay commercial rent, only to cover our costs which would mainly be interest on loans we will be using to help with the purchase. What I am wondering is whether we would be taxed on the contributions we receive. We would set up a legal tenancy agreement in case anything goes wrong with the arrangement in the future.

CKhalvashi

It ultimately will depend on your tax situation.

Mortgage interest can only be deducted to a 20% tax bracket for example. You're also possibly going to come into conflict with mortgage terms (you'll need 125% for most mortgage applications to avoid limiting your own income).

This would be too high risk situation for me to personally even consider it.

Pennywise

Aside from the restricted tax relief on interest, you're going to have a surplus between the rent paid and the interest deducted, i.e. the capital repayments of the loans, which you'd be taxed on.  Plus any other expenses they pay which aren't allowable against tax in your tax return, such as any property improvements.

Jeremy535897

The way the basic rate tax credit works also means that your adjusted net income is not reduced by it, which can have knock on effects for child benefit, personal allowance withdrawal and tax rates. As landlord you have to ensure the property is properly insured. You have an obligation to ensure that all appropriate gas and electricity safety checks are carried out, boilers are serviced etc. If you have any other rental income, you cannot relieve any loss on this property against it.

You will pay the additional rate of stamp duty on the property, and as it is not your main residence, any gain will be subject to capital gains tax, and any growth in value will increase your estate for inheritance tax.

If you are expecting them to pay the mortgage, the issue seems to be around their ability to put down a deposit. Perhaps you could lend or gift them sufficient to enable them to buy it for themselves. You might also guarantee the mortgage, although this is a very risky thing to do because if they default, you have to pay it.