Buying student house for son and 1 tenant friend - what tenancy??

dorastendle

We are fortunate enough to have been able to buy outright a 2 bed house for our son to live in at Uni, together with 1 friend. Son will pay a contribution to bills (from his student loan) but no rent. The friend will rent the second room. The house is in my name. I am not sure what sort of tenancy agreement we need for the friend who is going to share the house with him? Is there a way he could be my son's lodger or do I need a bed-sit type tenancy for him? Any advice gratefully received, totally new to being a landlord and want it to be safe, fair and legal for everyone involved. thank you!

Bookworm105

what is your (not your son's) objective:
- avoid having to pay tax on income?
- avoid having to be classed as landlord and thus meet legal obligations arising?

propertyrental

son could be landlord if friend pays rent to him, and friend would be a lodger (Excluded Occupier).

Son could use rent-a-room scheme to avoid paying tax on rent.

If son passed the rent on to you you'd be on dodgy ground - basically he'd be acting as your agent and you'd be the LL (and have to declare rent to HMRC) and friend would be your tenant, not a lodger.

Rent a Room Scheme (HMRC guide for tax-free income from lodgers)

Post 7: New landlords (1):advice & information :see links in next post

Post 10: Lodgers: advice & links for landlords & lodgers

silvercar

propertyrental said:

son could be landlord if friend pays rent to him, and friend would be a lodger (Excluded Occupier).

Son could use rent-a-room scheme to avoid paying tax on rent.

If son passed the rent on to you you'd be on dodgy ground - basically he'd be acting as your agent and you'd be the LL (and have to declare rent to HMRC) and friend would be your tenant, not a lodger.

Rent a Room Scheme (HMRC guide for tax-free income from lodgers)

Post 7: New landlords (1):advice & information :see links in next post

Post 10: Lodgers: advice & links for landlords & lodgers

Could son be the tenant and allowed in the tenancy to have a lodger. That way any rent paid by son (the tenant) to his mum (the landlord) would be rent. But it would mean the lodger is still a lodger and therefore with less rights.

Do you offer any financial support to your son other than living rent free? If so, it could make more sense for son to keep the lodger’s rent money (tax free under the rent a room scheme) and use that instead of parental support. Alternatively, it could be agreed between you and your son that the rent he receives from his friend the lodger be saved away for a future house deposit or similar.

_Penny_Dreadful

dorastendle said:

We are fortunate enough to have been able to buy outright a 2 bed house for our son to live in at Uni, together with 1 friend. Son will pay a contribution to bills (from his student loan) but no rent. The friend will rent the second room. The house is in my name. I am not sure what sort of tenancy agreement we need for the friend who is going to share the house with him? Is there a way he could be my son's lodger or do I need a bed-sit type tenancy for him? Any advice gratefully received, totally new to being a landlord and want it to be safe, fair and legal for everyone involved. thank you!

To whom is your son going to be paying a contribution towards the bills, you or directly to the utility companies? 

The friend could be your son’s lodger (excluded occupier) and your son would be your tenant with an AST for the whole property. I’m not sure what a “bed-sit type tenancy” is and this is a 2-bedroom flat, not a bed-sit. You could create an AST for the friend to rent a room in the property making you the friend's landlord rather than your son. Either way you'll be creating an AST (assuming this is in England) with someone. 

km1500

if your son pays you no rent then he will not be a tenant and an AST will not be created and thus you will be able to avoid all the regulations around that area 

his friend should be a lodger - in other words your son should continue to have access to the whole area of the house including the friend's room do not put a lock on the friend's room for example

gazfocus

km1500 said:

if your son pays you no rent then he will not be a tenant and an AST will not be created and thus you will be able to avoid all the regulations around that area 

his friend should be a lodger - in other words your son should continue to have access to the whole area of the house including the friend's room do not put a lock on the friend's room for example

I would still think there would be a tenant/landlord relationship regardless of whether there is rent changing hands as it would still be the OP responsible for repairs, etc and so the property would still need to meet the legal requirements for a rental property. 

silvercar

gazfocus said:

km1500 said:

if your son pays you no rent then he will not be a tenant and an AST will not be created and thus you will be able to avoid all the regulations around that area 

his friend should be a lodger - in other words your son should continue to have access to the whole area of the house including the friend's room do not put a lock on the friend's room for example

I would still think there would be a tenant/landlord relationship regardless of whether there is rent changing hands as it would still be the OP responsible for repairs, etc and so the property would still need to meet the legal requirements for a rental property. 

I disagree. If the friend is a lodger off the son. Then the parents buying a second home that their son lives in does not create a tenancy arrangement. There are plenty of these sort of arrangements around that don't create tenancy arrangements eg people buying a home for elderly parents, second homes occupied by offspring...

_Penny_Dreadful

silvercar said:

gazfocus said:

km1500 said:

if your son pays you no rent then he will not be a tenant and an AST will not be created and thus you will be able to avoid all the regulations around that area 

his friend should be a lodger - in other words your son should continue to have access to the whole area of the house including the friend's room do not put a lock on the friend's room for example

I would still think there would be a tenant/landlord relationship regardless of whether there is rent changing hands as it would still be the OP responsible for repairs, etc and so the property would still need to meet the legal requirements for a rental property. 

I disagree. If the friend is a lodger off the son. Then the parents buying a second home that their son lives in does not create a tenancy arrangement. There are plenty of these sort of arrangements around that don't create tenancy arrangements eg people buying a home for elderly parents, second homes occupied by offspring...

It will create an AST if the son passes the lodger's rent on to the parents whereby the son becomes the tenant.

propertyrental

If son pays no rent to parents, neither from his own pocket nor from the friend, and also provides no 'rent in kind' to his parents, then no tenancy is created.

Maintenance of the property, and its habitability. is not dependant on there being a tenancy.

dorastendle

Thank you for all the responses.

what is your (not your son's) objective:
- avoid having to pay tax on income?
- avoid having to be classed as landlord and thus meet legal obligations arising?

My objective is to keep everything legal, give my son a secure place to live and be fair to the friend/tenant. We would have been paying around 10k a year in rent if we hadn't bought the property - if we end up in profit that is a bonus but it is not the motivation and I do not want to avoid tax. 
We have assumed that I will pay tax on rental income and that I will have legal obligations. The property will be in my name rather my son's as he is not yet ready for the responsibility of being a landlord (he is autistic and not the most mature 19 year old around, needs more emotional/practical support than his younger siblings). 
By bed-sit type tenancy I meant a tenancy for one room, rather than a tenancy for the whole house with all the students' names on it and joint responsibility for the rent (most of the student rentals in the area seem to work with a whole house agreement, but some are still advertising contracts for single rooms). It seems confusing to do an AST for the whole house with 2 names on it if one of those name's is my son's and he won't be paying rent.... but I wasn't sure if I could do an AST just for one of them?
Son would not be living off his (minimum) maintenance loan. I had assumed utility bills would be in my name and paid out of the rental income from the tenant.