buying a house for my son to rent and inherit

Gouldians

Advise please
I am retired (60) and have 120k tax free in my pension pot
Plan is to take £12500 out of my taxable pot then use tax free cash to make up the shortfall
My son and girlfriend are working but are on low wages and receiving universal credit including housing allowance and they are paying a private landlord £500 per month as they cannot get a mortgage.
My pension pot is averaging 4.5% interest so this is my plan
Buy a property in my name £110,000 then rent to the son. He can afford £600 per month so i take £412 which i would of got if i left the £110,000 invested and knock the overpayment off the £110,000  (sort of a private mortgage). When he gets a better paid job then hopefully he can get a mortgage in his name.  Just trying to get him on the ladder.
The house i am purchasing is £95,500  with £30,000 of work required   i am gifting him £15,000   when the house is refurbished will be worth £165,000
Can anyone see any pitfalls or another way round doing it.
I was going to put the house in his name and loan him the money but he would not get the housing benefit as he would own his home and the benefit is worth £421 per month

Hoenir

The rental income in your hands is taxable.  However long it may take the HMRC is more than likely going to detect the "private" arrangement. 

Who is going to cover the property maintenance costs? 

Keep_pedalling

Some things for you to consider.

Buying in your name will cost an additional 3% SDLT

CGT will come into play on any gain between purchase and sale.

You will be shifting a considerable lump sum from a pot that is not subject to IHT to an asset that very much will be.

You are going to have to take on all the responsibilities and obligations of a landlord (see final point)

Housing benefit when renting from a close family member will only be paid if renting on a commercial basis. 

https://england.shelter.org.uk/housing_advice/benefits/claiming_benefits_if_you_rent_from_family

Gouldians

i will be using the rent payments as part of my personnel allowance which i believe is £12500
I am a retired general tradesman so i will be doing the maintenance. Been doing houses up most my working life

Gouldians

The house will be getting new heating system, windows bathroom and kitchen and full skim (bungalow) so hopefully no material costs for a few years

_Penny_Dreadful

Gouldians said:

Advise please
I am retired (60) and have 120k tax free in my pension pot
Plan is to take £12500 out of my taxable pot then use tax free cash to make up the shortfall
My son and girlfriend are working but are on low wages and receiving universal credit including housing allowance and they are paying a private landlord £500 per month as they cannot get a mortgage.
My pension pot is averaging 4.5% interest so this is my plan
Buy a property in my name £110,000 then rent to the son. He can afford £600 per month so i take £412 which i would of got if i left the £110,000 invested and knock the overpayment off the £110,000  (sort of a private mortgage). When he gets a better paid job then hopefully he can get a mortgage in his name.  Just trying to get him on the ladder.
The house i am purchasing is £95,500  with £30,000 of work required   i am gifting him £15,000   when the house is refurbished will be worth £165,000
Can anyone see any pitfalls or another way round doing it.
I was going to put the house in his name and loan him the money but he would not get the housing benefit as he would own his home and the benefit is worth £421 per month

It would be more tax efficient for the house to be purchased in the son’s name and for you to set up a private mortgage with him to repay you the money. However, he would not be entitled to the housing element of UC to repay a mortgage.  Then again he wouldn’t be entitled to the housing element to pay rent for a contrived tenancy either. 

Gouldians

I did some research regarding renting to family members and i assumed it was ok

Keep_pedalling

Gouldians said:

I did some research regarding renting to family members and i assumed it was ok

Your research could not have been that detailed. Never assume, be certain.

AlexMac

If you can make this work I think it’s a great idea. I assume that you’ve looked at Shelter’s advice at
https://england.shelter.org.uk/housing_advice/benefits/claiming_benefits_if_you_rent_from_family

Which does say it may be OK but does point to potential pitfalls;

SHELTER WEBSITE QUOTE…

“ Claiming benefits if you rent from family

Most renters on a low income can get help with rent through either:

• universal credit housing element - if you're working age

• housing benefit - if you're pension age or already receiving it

But sometimes you cannot get housing related benefits if you pay rent to a close family member or former partner.

Legally binding tenancy agreement

You must rent on a commercial basis to get housing related benefits.

Your agreement can be legally binding even if you pay less than market rent.

Your family member:

• does not have to make a profit from renting to you

• should take on the rights and responsibilities of a landlord

Benefit decision makers consider whether your relative would enforce the agreement. For example, by serving notice to end the tenancy if you do not pay rent...”

One reason I’m so sympathetic to you wanting to help your family is that I did almost the same 25 years ago to house the daughter and granddaughter of my girlfriend (who many years later became my wife, although I don’t imply cause and effect, lol!)

She, the daughter, was a single parent on HB, renting a crummy, damp flat on the then air-polluted south east London flood-plain, so I used some redundancy money and savings to buy a decent flat on an airy hill.  

There was no problem with HB, which was not subject to the discretion of the Benefits people, as she wasn’t then my relative. When she moved on, I continued to let it out, and enjoyed declaring and paying income tax on the rental income. As a secondary benefit, I’ve enjoyed crazy Capital Gains - of 800% - so I also look very much look forward to paying £60k or more GGT or IHT, whichever is the sooner!

The beautiful irony is that the whole thing has come full circle. Our granddaughter, now 27, approached us a few years back armed with a spreadsheet of her monthly budget to justify her request to become our next tenant. So now she is again, on a pukka AST, independent and secure, albeit with a lodger to make it affordable. The family relations and tag slightly soft rent is no problem as she ain’t on HB, having been lucky enough to work continuously since she was 19. Result! (Oh, and we fulfill all Landlord obligations from Gas Safety to Self-Assessment, so if you do go down this road, as I hope you can, do it right). 

RHemmings

If the house remains in your name, then things may get sticky if you need to go into care. As you could be expected to sell the house and use those funds to part-fund your care. I believe that this wouldn't be the case if you are living with your son, but I don't know what would happen if it is a separate house with family members living in it. It may become too late to sell the house and that not being 'deliberate deprivation of assets' if you know that you will need care when you try to sell it or give it to your son. 

theartfullodger

Common advice from landlords - never rent to friends or family.

A very quick way to ruin relationships....