Tax on Dependent Relative Mortgage

Haydenlm1

Hello guys,

I am in the process of purchasing an additional property for my mum, dad, brother and sister to live in via the relative dependent mortgage scheme via Natwest.
They do not own a home.

I currently own my own home but the security of my parents future in a home is something that is extremely important to myself to make sure they are safe getting older and they would like to be closer to me if possible so I can look after them in the future.
Renting is not a great option for them for many factors , one of the obvious ones are that rent has gone through the roof for normal houses nowadays. It is much cheaper to take a mortgage..

As far as I understand, my mortgage  that nat west will be giving me suggests only my relative can live in the property and not myself, and this is fine as Im not planning to live there or do anything with this property but let my parents with my siblings stay there as long as they'd like.

I currently work and employed and was wondering if I would have to declare tax when my parents pay me to mortgage payments? E.g. if mortgage is £500 per month, they will pay £500 per month.

Is there a particular part in the dependent relative mortgage that suggests I wont have to pay any tax as long as mortgage payments are covered by the relative? I have been told its different than a buy to let mortgage.
For example, for my second property, Nat West advised me that I could put only 5%-10% deposit down on the second property which is not normal either considering other buy to let Morgages asks you for around 20%-25% deposit..

How does this work? Because im hearing mixed things..

Many thanks!

dimbo61

Can't understand this.
You will own 2 properties  and therefore pay 3% extra stamp duty.
You will be a Landlord and need to do everything required as such 
You must declare your income and pay tax 
Can you buy the property in your brother and /or sister name with you on the mortgage but not on the deeds ? 

Haydenlm1

dimbo61 said:

Can't understand this.
You will own 2 properties  and therefore pay 3% extra stamp duty.
You will be a Landlord and need to do everything required as such 
You must declare your income and pay tax 
Can you buy the property in your brother and /or sister name with you on the mortgage but not on the deeds ? 

I  am aware of the stamp duty and I am willing to cover it,
how much tax do I declare , how does it work? I heard some say you only get taxed on the interest of the mortgage etc..?

No, unfortunately I cannot as they are too little.

macman

You declare the rental income, less any allowable deductions. It's added to your existing income.
I suggest you do some research on the many and onerous statutory requirements of becoming an LL. 

Annisele

What sort of "mixed things" are you hearing?

As macman says, you pay tax on the rental income less any allowable deductions. I wonder if the "mixed things" you're hearing is because for some landlords, that ends up as no tax at all - but for others it works out to be quite a lot of tax. It depends on the landlord's overall tax position.

sheramber

You are liable to tax on  the total income received less any allowable expenses ( do your research into what is allowable )

You then  get relief at 20% on the interest repayment only. There is no tax relief on any capital repayment part of the payment.

You also need to research the requirements required being a landlord- 

There is a pinned post at the start of this section  with information
https://forums.moneysavingexpert.com/discussion/5180214/tenancies-in-eng-wales-guides-for-landlords-and-tenants#latest

Haydenlm1

Annisele said:

What sort of "mixed things" are you hearing?

As macman says, you pay tax on the rental income less any allowable deductions. I wonder if the "mixed things" you're hearing is because for some landlords, that ends up as no tax at all - but for others it works out to be quite a lot of tax. It depends on the landlord's overall tax position.

How can it end with no tax at all for some land lords? What can they be doing different than what I am doing?
Sorry if its a silly question, just trying to help family out and new to this.

I have read around forums and just general searching online that some people say it should be declared and tax paid on it and some say it is fine as long as mortgage is covered for a dependent relative mortgage, as long as they live in the house and no one else. 

This is the reason for this post as I am entirely unsure of whats correct and what isnt.

Annisele

There are all sorts of reasons for people to have different tax positions.

For example, some landlords have no other earnings. Say you have taxable income of £1000 per month from letting property, and no other income at all. That's total income of £12k per year. Most people have a personal allowance of £12,750, meaning they don't pay tax on the first £12,750 they earn. If their taxable income fits entirely within their allowance, then there's no tax to pay.

But rental income is taxable income, and should be declared. If your mortgage is interest only, then (depending on your tax position) you might find that you can offset the whole of the rental payment against the interest cost, leaving zero tax to pay.

sheramber

The landlord's  total income may be below his personal tax allowance.

He may have a lot of allowable expenses in the year.


You also need to consider if the 'rent'  being paid is below the market level then allowable expenses should be restricted by the same amount.

Ask those who tell you it is not taxable to provide you with  the proof of that.

 I suggest you need to use the services of an accountant to keep you correct.

jonnydeppiwish!

Op, basically if your mortgage is £500, then the rent you charge needs to cover and ongoing maintenance, any tax you’ll pay, plus a little bit extra in the pot for when something goes pete tong.

If we use the £500pm mortgage as an example, £100 pm on normal maintenance, £100 on tax (assuming 20%) plus a pot to build up of £100, then you’ll need £730 rent after the interest only tax allowance.

What you could do instead, is set up a private mortgage and loan them the money to purchase a property and they have their own home….

_Penny_Dreadful

As far as I know NatWest doesn’t offer regulated BTL mortgages which is what you’d need to let to family. I’m not sure what this “dependent relative” mortgage is (is that what it’s actually called) but it sounds an awful lot like one of NatWest’s 2nd Residential Property mortgages that they will do up to a max of 90% LTV.  

If you family is then giving you the money to make the mortgages payments then that does sound like rental income to me which will be subject to income tax as others have said.