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

Bookworm105

dorastendle said:

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.

so, as you are happy to be a LL...
yes you can create an AST for a specific room in a property, obviously with right of access to common areas.

The occupant would thus have exclusive use of said room in return for paying rent direct to you. Normal tenancy law would apply to the relationship between you as LL and the occupant as tenant, ie you could evict through due process. Your son would and should play no part whatsoever in that relationship, all correspondence etc should be direct to you.

as your son would not be paying rent, there is no need for any form of tenancy arrangement between you and him. You have let a room, not a house. To the extent that your son will understand it, he should be made aware that he does not have the right to enter the occupant's room without permission, and more importantly, nor do you if you visit your son in the rest of the house.

from a practical perspective you can of course pay all the utility bills yourself. However, bear in mind that when calculating your taxable profit, you cannot deduct the full cost as a part (50% would be "reasonable) of it would be in respect of your son. Therefore that part has "duality of purpose" in that it is not a cost arising wholly and exclusively because of a business relationship (LL & T) between you and son, you are simply providing for your son, as you have always done to date.

As LL you will be responsible for meeting the legal obligations for the property as a whole, so EPC, gas safe certificate, electrics etc 

From an overarching financial perspective, you are going to face a capital gains tax bill anyway and have already incurred higher rate SDLT on the purchase. Therefore you receiving a net profit after whatever income tax band you belong to is a reasonable plan to get some cash to offset that extra expenditure when measured against you simply funding your son's accommodation costs throughout his student hood and thus giving your wealth to someone else.

Whether you will end up making a post tax net gain is down to whatever the economy does over the next 3 years and the property market in the actual city that son will be living in. Parents obviously have bought property for their kids and come out of it with a profit, but some haven't but instead look upon it as they retain control over the quality of where the kid lived. 

silvercar

Still think the easiest is for the son to keep the lodger’s rent in a separate account and use it to pay utility bills etc

_Penny_Dreadful

dorastendle said:

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.

You can do an AST for just one of them and if you go down that route the sensible thing would be for the AST to be in your son's name for the whole property.  The friend is then your son's lodger.  The friend pays your son the rent and in turn your son pays you the rent hence why an AST is created for your son as he is contractually obligated to pay you rent regardless of the source of that money.

@silvercar makes a good point that rather than have an AST the best thing to do might be for your son to have a licence to occupy the property either as an occupier with basic protection or an excluded occupier whereby he pays not rent to you whatsoever and that includes whatever the friend pays to live there.  The friend is then your son's lodger (excluded occupier) and your son uses the rent paid by the friend to pay the utilities which are in your son's name, not yours. 

The issue with you creating an AST with the friend is that if the relationship between your son and the friend breaks down then it will take a long time for you to legally evict the friend whereas if he is your son's lodger then it's reasonable notice and tatty-bye.