‘Renting’ to family

Grumpy_chap

pac-man said:

silvercar said:

Is friend actually married to his partner? If not, it all becomes easier as unmarried partners can each have their own home, whereas a married couple can only have one principle residence between them for tax purposes.

They are married. Short marriage so far. Both houses bought pre wedding.

Just for clarification, they cannot change their historically declared place of habitation.

pac-man

I don’t think they’d try and do that. Would know it’s impossible. Friend was registered as living there for the for the first 6 months or so. Then moved in officially with partner before getting married. What a tangled web we weave.

FlorayG

OP, if this really is a friend of yours and not actually you I would suggest you give them the information supplied here and tell then their potential (Only potential, as comments here don't know the entire story) problems and legalities and then step away and have nothing further to do with it. Your friend can 'fess up and pay his tax or keep on as he is - you don't want to be involved in the latter case

silvercar

pac-man said:

I don’t think they’d try and do that. Would know it’s impossible. Friend was registered as living there for the for the first 6 months or so. Then moved in officially with partner before getting married. What a tangled web we weave.

That helps to a certain extent. On sale of the friend’s property, there are exemptions for the time it was their home plus the last 9 months of ownership. That’s under current rules on CGT.

Some elements of this tale are less worrisome than some think. If the tenant friend has signed something with the mortgage lender, then the lender is aware of their presence. Whether it is a residential mortgage or a regulated BTL isn’t that important. The lender knows they can repossess if necessary and remove the tenant. 

I’d regularise things going forward. Friend has made such payments that it can no longer be considered gifts and needs to be considered rent. Start doing so from say 1/1/25 and account for it properly. 

Use an online calculator like this one https://taxscouts.com/calculator/rental-income-tax/ to work out the costs of renting with the current mortgage and see how the numbers work.

mybestattempt

silvercar said:

pac-man said:

I don’t think they’d try and do that. Would know it’s impossible. Friend was registered as living there for the for the first 6 months or so. Then moved in officially with partner before getting married. What a tangled web we weave.

That helps to a certain extent. On sale of the friend’s property, there are exemptions for the time it was their home plus the last 9 months of ownership. That’s under current rules on CGT.

Some elements of this tale are less worrisome than some think. If the tenant friend has signed something with the mortgage lender, then the lender is aware of their presence. Whether it is a residential mortgage or a regulated BTL isn’t that important. The lender knows they can repossess if necessary and remove the tenant. 

I’d regularise things going forward. Friend has made such payments that it can no longer be considered gifts and needs to be considered rent. Start doing so from say 1/1/25 and account for it properly. 

Use an online calculator like this one https://taxscouts.com/calculator/rental-income-tax/ to work out the costs of renting with the current mortgage and see how the numbers work.

I'm not entirely sure what you mean by regularise going forward and only accounting for the rent from 01/01/2025. 
 
The friend needs to sort out the tax situation from the date the friend's relative moved in and stated paying money to the friend; it's been rent throughout.

A deliberate act to not declare the property income arising before 2025 would result in higher tax geared penalties than a truthful and full disclosure.

pac-man

FlorayG said:

OP, if this really is a friend of yours and not actually you I would suggest you give them the information supplied here and tell then their potential (Only potential, as comments here don't know the entire story) problems and legalities and then step away and have nothing further to do with it. Your friend can 'fess up and pay his tax or keep on as he is - you don't want to be involved in the latter case

Not me. I may have tweaked things a little though to try and make it slightly less identifiable in some areas but the premise is as written. I would also be more impacted than the friendship we have if things were to go wrong… I have a friend who is a tax accountant so I’ve asked them for advice. Seeing them at the weekend, so will hopefully have more ‘official’ answers then. Enough worry for now. I’m going to try and switch my head off and see if sleep comes tonight. Thanks all for your pennies worth. It seems I know more now than I did about what they’ve got themselves in to.

pac-man

Knowledge is power. Friend is still in denial that there’s a problem, so will have to chip away (when I’d rather use dynamite!).

Grumpy_chap

pac-man said:

Knowledge is power. Friend is still in denial that there’s a problem, so will have to chip away (when I’d rather use dynamite!).

You might be better advised to simply and firmly state the matters of concern and then follow up that you are unable to assist further and your friend requires professional advice (Accountant).

Then walk away.

Particularly since you said this is causing you some stress (impacting sleeping).

Talking to another friend who is an Accountant is dragging yourself further into the situation and risk errors through "Chinese Whispers".  If you do talk to your Accountant friend, the best thing would be to introduce them directly to the friend with the unofficial rental.

ThisIsWeird

Pac-man, have you given us an idea of the timescale here?

1) how long has your friend owned their mortgaged home?

2) when did the relative move in?

3) when was this 'resident' declared on the mortgage - from the very start?

4) is your friend also down as a resident owner on the mortgage?

5) when did your friend get married to their partner?

silvercar

As you are advising friend to see a professional, may be worth querying whether the tenant could actually be the beneficial owner, with your friend being the legal owner. The argument being that the mortgage is in the name of the legal owner, beneficial owner is actually paying over the money to pay the mortgage (albeit with help from family member, which wouldn’t in itself be a problem, plenty people help family members with living costs).

Only throwing this into the ring for discussion, not saying it is the answer.