Posted overseas with Forces - renting to brother

Grecian123

I apologise if this has been covered elsewhere, but there is so much information and trying to find the right direction is difficult.

My wife and I are being posted overseas in Sep for 3 years with the UK military. My brother is currently divorcing from his wife and we have said he can stay at our house in the UK and we will charge “mates rates” (£500 a month, he pays the energy bills and we continue to pay council tax). This not only gives him a place to stay, but provides security for the house. The house will be partly furnished (will be leaving some beds and sofas, plus white goods).

We will become accidental landlords. The questions I have are:

1. As we will be overseas with UK military, our home in UK is still our primary residence. Do we still go down the Non Resident Landlord Route? I believe either he registers and pays basic rate, or we can get approval to receive whole amount and pay the tax on the income at the end of the financial year?
2. As joint owner with my wife, when doing self assessment do we just add 50% of the income on each of the assessments? I.e I enter £3000 in rental income and so does my wife? Would this be similar for any expenses?
3. Any other considerations (ie, I guess we would have to get the electrical safety certificates etc and landlord insurance?). There is no mortgage lender in this instance, so don’t need those permissions.
4. We will be returning home perhaps once a month. Does being a landlord stop us from staying in our home when in the UK (my brother wouldn’t stop us doing this, but want to check the legalities)
   

in the past he has lodged with me, but that is when I was residing in the house and it was under the rent a room threshold, so this is the first time when there will be tax and other implications, so want to ensure I get it right and keep it all above board.

WIAWSNB

I imagine there will be other considerations, but you can earn up to £7.5k pa before tax with the RaR scheme, as you did before.

If it's still your main home in most respects - you say you'll still be paying CT - then you can certainly live in it every time you are back in the country.

No leccy or gas certs required. No special insurance.

Grumpy_chap

Do you have a mortgage on the house?

Will the mortgage lender permit this?

Grecian123

https://forums.moneysavingexpert.com/discussion/comment/82032211#Comment_82032211

no mortgage on the house

silvercar

a. He’s your brother

B. It is still your primary residence

C. You will return and live in the property as and when, even for only short breaks.

D. Sounds more like a casual arrangement or possibly a lodger arrangement than a full blown tenancy.

e. Anything he pays you would be rent within the rent a room scheme or board as a family member making a contribution to the household costs. Either way I don’t see the need to involve hmrc or any landlord / tenancy requirements.

F. I’d tell your insurer your going away for work and a family member will be in the house.

mybestattempt

https://forums.moneysavingexpert.com/discussion/comment/82032243#Comment_82032243

However informal this family arrangement might be, I wouldn't be confident that HMRC would agree with you:

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4810

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim4850

artyboy

https://forums.moneysavingexpert.com/discussion/comment/82032318#Comment_82032318

Not to mention if (heaven forbid) the OP had a falling out with their brother, who then decides they have a formal tenancy which can be evidenced by regular £500 'rent' payments.

If the OP isn't going to bother with gas safety and all the other annoying little legalities of being a proper landlord, then it could end up being very difficult and expensive to kick them out again…

(of course the OP's brother could then also find themselves on the hook for tax given their 'landlord' is overseas)

Jude57

Just to mention that, if the brother isn't registered at the address for Council Tax, he may find it difficult to obtain credit and some employment. While lenders, including credit cards, car finance etc, make use of the Electoral Roll for identity verification purposes, the Council Tax register is data matched with the Electoral Roll and any anomalies investigated. Technically, it's an offence attracting a fine of up to £1,000 to fail to notify the Council Tax authority of changes, though it's rarely taken that far in my experience (over 10 years in Council Tax recovery). In this case, the Council Tax bill would be reduced by 25% if the brother is the only adult in residence. Who actually pays the Council Tax isn't going to concern the Council, as long as it's paid by someone.

theartfullodger

There is a general landlord rule - NEVER rent to friends or family.

HMRC (IMHO quite rightly) may tax you on the market rent rather than "mates rates". If renter ever needs to claim housing benefits council or whoever may decide there is a fiddle going on and not pay the right rate.

sherlock228

a few mistaken assumptions in previous posts

the RaR (rent a room) scheme is NOT available just because you only own one property.
although in the military, your situation is the same as anyone else who occupies "job related accommodation" that they do not personally own (SFA in your case)

your overseas posting becomes your main home and therefore you cannot claim to have a lodger in a UK "main home" because the UK property is no longer your main home. Furthermore, you cannot claim exemption from income tax on your rental income under RaR just because of your military service.

PIM4015 - Rent-a-room: going abroad and/or occupying job related accommodation - HMRC internal manual - GOV.UK

OP is correct in assuming he will fall under the non resident LL rules,
entirely at his discretion if he formally registers under that to receive the rent income without tax deduction., although probably easier to do so rather than leave the brother to have to administer and pay over the tax to HMRC himself.

so the normal rental rules will apply
- unless OP and wife make a declaration to register unequal shares (using a Form 17 declaration) then the rent must be split 50/50 between them
- all costs similarly split according to the respective shares to leave each person with their own net profit upon which they will be taxed in their own name

the fact the tenant is a member of the family does not remove OP's liability to follow normal LL requirements:

• ECIR and gas check as applic
• right to rent check performed and tenant given the info required under Renter's Rights Act
• as the brother is legally the tenant then the liability for council tax falls on the brother not the OP. Therefore the bill will need to be on brother;s name (OP may want to revise the renal amount to allow for you not having to pay it?)

For capital gains tax purposes - the fact OP is occuping job related accommodation does mean they will still get PRR (private residence relief) on that property and so won't face a CGT bill when they sell it

Armed Forces and Capital Gains Tax: What You Should Know

silvercar

Anything stopping OP keeping the house as their PPR? Especially as they intend to return regularly.