Buying second home for parent to live in

LanaSteff

Hi, we just remortgaged our house but the money will not be enough to renovate it at present. We are considering buying a second property as an investment with the renovation money and let a parent live in it rent free. The parent lives most of the year abroad with the occasional 1-2 months a year in the UK. Are there any issues/downfalls with such approach? Would we still have to pay capital gains tax one day if we never earned rental income from this property? Many thanks.

user1977

Generally, you pay CGT on all property - the only exemption is your own main residence, so yes CGT would be payable.

Is it only going to be occupied 1-2 months a year and empty otherwise? Quite a lot of overheads (and issues with insurance etc for unoccupied buildings).

diystarter7

LanaSteff said:

Hi, we just remortgaged our house but the money will not be enough to renovate it at present. We are considering buying a second property as an investment with the renovation money and let a parent live in it rent free. The parent lives most of the year abroad with the occasional 1-2 months a year in the UK. Are there any issues/downfalls with such approach? Would we still have to pay capital gains tax one day if we never earned rental income from this property? Many thanks.

100%  cert you will pay CGT if price rises and after allowances.
I find it a bit odd they will be living there 2 months but the CGT will have to be paid as above.
Parent could refuse to move out so important to set up an agreement.. Parent could have an OH and they refuse to move
Needs to be done properly ie who lives there and on what terms.
If its family and rent free, I'm not sure if you needs LL's gas/elec certs etc someone else will make that clear.

Btw, have you told the lenders that you have borrowed the money for a BTL as you know BTL rates are higher.

thegreenone

Could you use the money to build an annexe on your current property that could be used for other purposes, when Parent is not in residence? 

It does seem unusual to leave another property empty for most of the year. 

As above re CGT, yes.

Slithery

diystarter7 said:

Parent could refuse to move out so important to set up an agreement.. Parent could have an OH and they refuse to move

No they can't. As they aren't paying rent they would be an excluded occupier not a tenant so the usual tenant protections won't apply.

diystarter7 said:

Btw, have you told the lenders that you have borrowed the money for a BTL as you know BTL rates are higher.

The OP has remortgaged their main residence and will be using the money to buy a second home that isn't let out. BTL doesn't come into it.

Brie

could it be advertised as a AirBnB for the other months of the year?  locally a lot of places are short term rentals Oct to April and then let weekly during high tourist season.

TBagpuss

LanaSteff said:

Hi, we just remortgaged our house but the money will not be enough to renovate it at present. We are considering buying a second property as an investment with the renovation money and let a parent live in it rent free. The parent lives most of the year abroad with the occasional 1-2 months a year in the UK. Are there any issues/downfalls with such approach? Would we still have to pay capital gains tax one day if we never earned rental income from this property? Many thanks.

Yes, you would pay CGT as that is tax on your capital gain - i.e. the amount by which the value of the hosue goes up between when you buy it and when you sell it. It's irrelevant whether your rent it out or earn any income from it in the meantime.

If your paretns (or anyone else) paid rent to stay in the property thenthat would be income and you would be liable to pay income tx on i, subject tothe usual rules and your annual allowance.

There is nothing to prevent you from buying a second home and allowing your parents to live in it part time, lthouhg you'd have to consider whether it was practical / cost effective. You migth be able to rent it out as a holiday let when your parent were not using it, if you wanted to, bu of not,having a property which is going to stsnd empty 80% of the time doesn't sound very sensible. You'd  have to pay council tax (at the higher second homes rate) and would need appropriate insurance as most domestic policies are invalid if the proprety is empty for more than a set preiod of time (typically30 days, sometimes 60)

Why not plan your house renovation in stages and use the money forthe purpise you borrowed it for? 

lisyloo

You might have to pay extra council tax if it’s empty (potentially double).
varies by authority I believe.

SDLT_Geek

OP: Have you allowed for the extra stamp duty?  If buying in England it would be an extra 3% SDLT.