Renting Property in Trust, do you need special insurance?

KipperTrust

My mother is now living with me and my father (deceased) settled the property on her in a Trust. She is able under the Trust to rent the property out and be beneficiary, however, she is unclear if standard Landlords insurance would be valid or whether you need to have a special form ie Trustee's Landlord insurance. If you do need Trustee Landlord insurance for buildings only, which companies provide this service? The online insurance websites are not very helpful.

DullGreyGuy

What obligations does the trust put on her in terms of property maintenance and repairs?

If she has an insurable interest, eg she is liable for maintaining the policy, then she can potentially insure it herself. She does need to be careful with answering the Qs though because they are likely to ask how long she has owned the property and the accurate answer is that she doesnt. 

As LL insurance is a form of business insurance they should really be asking the nature of the owner, Direct Line for Business does and Trust is one of the options on the list, but others who are being a bit lax dont and just ask who the owner is with a free text field. If others are cheaper then speak to the insurer/broker in question and ensure they are happy with the setup. 

poseidon1

KipperTrust said:

My mother is now living with me and my father (deceased) settled the property on her in a Trust. She is able under the Trust to rent the property out and be beneficiary, however, she is unclear if standard Landlords insurance would be valid or whether you need to have a special form ie Trustee's Landlord insurance. If you do need Trustee Landlord insurance for buildings only, which companies provide this service? The online insurance websites are not very helpful.

There are no specific landlord's policies for trustees of private family trusts although a few may allow for trustee ownership in their categorisations. 

The trustees of the property merely  takeout the appropriate policy in their joint names as legal owners of the property.

However embarking down this road of letting the property introduces significant trust administration and tax compliance duties which I would question whether either you or your mother will be equipped to handle or properly appreciate. Please note the following therefore:

1) The trust should have been registered on HMRC's trust register within 2 years of your father's death. There are potential penalties where this has been overlooked.

2) The trust deed ( your father's will ) needs to have granted your mother specific powers to enjoy income from the trust in the event she vacates the property. Have you checked this is the case?

3) Assuming point 2) above is confirmed, and you do proceed to rent the property for your mother's benefit, the net rent ( after expenses) , is reportable to HMRC on a trust tax return and taxable on the trustees at 20% (basic rate) . I assume neither you or your mother have experience of self assessment by trustees?

4) The net ( after tax ) trust income reported in 3) above, must then be reported by your mother on her own personal tax return via form R185 produced by the trustees. Your mother may be entitled to a partial tax refund thereon or additional tax at 40% depending on her other income sources.

5) The trustees will need to produce annual trust accounts to keep track of monetary movements in and out of the trust. If your mother is determined to retain the property as a trust investment, you will eventually have to consider where money will come from when time comes for capital renovations to the property arises such as Window/Roof renewnals. Generally, retaining property as a trust investment in this circumstance is not ideal where there is no trust capital cash set aside.

6) There is also the issue of potential CGT (time apportioned) if the property is eventually sold during your mother' s lifetime. A  current valuation of the property  to set its baseline for future CGT purposes would be useful. Your mother's entitlement to the main residence cgt exemption terminates once it is retained as a letting investment.

Given all the trust  tax and administrative complexities mentioned above I would strongly suggest you seek professional advice and assistance from a firm of Chartered Accountants with specific expertise in family trust matters ( not all accountants have the requisite trust experience).  

STEP ( The Society of Trust and Estate Practitioners) directory, maybe a source to find a suitable firm see link below-

https://www.step.org/about-step/public

theartfullodger

Amazingly different insurance companies have different rules. And it will depend on what trust conditions are Speak to a couple of big insurers (not broker) and see what they say.