Can one buy a property for a friend and charge him rent?

Thank you everyone for your valuable time in replies. Indeed there are many implications which I will have to consider before jumping into the unknown waters, I certainly don't want to fall out with the tax man on CGT when it comes to selling it up to him at the agreed price, when the contract was drawn up, secondly yes what if my friend stops paying me rent, and what if he is still not in a position to buy it from me in 5 years or 10 years time from now, factoring my own age and expected life span, and what happens if I died suddenly , where would that leave him, so yes it needs a lot of planning and drawing up proper legal framework .

I will indeed be presenting this scheme to my accountant to see what his views would be , and what a shame I have funds that are doing absolutely nothing for me or use it to help a friend get on the housing ladder, I do not risk it in any other form of investment, I have been bitten investing in stocks ans shares.

Reply to the comment left by Mike at 04/09/2020 - 13:52
Hi Mike,
This is something that the right solicitor can put in place. It’s essentially a ‘tenant buyer’ profile. Rent-to-buy, if you like. I’ve briefly learnt about this and you can find more detailed information here (I’m not affiliated with this firm in any way - just selected it as it explains what you’re trying to do in a more legitimate way). https://www.leaseoptionsmadesimple.co.uk/articles/lease-options-rent-to-own-benefits-of-working-with-tenant-buyers
Good luck and hope all works out for you and your friend.

"Selling below market value"

it's caught:

https://www.gov.uk/tax-sell-property/work-out-your-gain

Yes, this is called Rent to buy. Your friend would be the tenant buyer. You buy the property under your name and he rents it from you over a pre-dertermined period of between 1-10 years. You use a modified AST tenancy contract and a lease option contract to purchase the property. The modified AST says that he will pay all maintenance and other issues. You will just pay buildings insurance and make sure the gas/EICR certs are done. The purchase option usually adds 4% inflation to the property cost, but it is fine to have no uplift. In the case of a 7 year lease option with compound interest that equates to 32% of the purchase price so £132,000, but it is equally legal to do 0% which is what savy buyers usually do with a £1 lease cost added. So that’s the purchase and rent, and the lease covers his purchase from you in X years. He will pay a rent top up which is 10% of the future price of either £100k/£132k, and that is kept in a separate client account so neither of you can spend it. He also has the option to buy before the X years at the SAME price, so if he inherited money etc. 7 years is incidentally the magic figure for writing poor credit history and creates good credit by paying regular rent. At the end of the agreed X years, he has 3 options - buy in full as agreed, don’t buy so walk away and loose the top up already paid, renegotiate for example if X years was now and he was furloughed and unable to pay rent for the last 4 months, the obvious option would be to delay for 6 months or a year to allow him to pay the rent arrears and top up. You would have already taken the arrears from the top up, so that needs to be paid back by him and when your straight it’s back to the buy option. Walk away is unlikely as they have 10% invested, and you’re looking at 0% uplift, so unless housing halved in value, he wouldn’t make a loss. For the tenant buyer, their mentality is that it’s their house from day 1, but effectively on a 32 year mortgage. They can do what they like with the property in terms of decoration, add conservatory, make repairs at their own cost. You don’t get the usual landlord headaches of damage and non-payment as NP invalidates the option and you keep the top up, or use the top up to repair damage and tenant needs to have paid it back or again the purchase option is not complied with.
I have done the training on this one, and have the contracts for the AST and purchase options if you would like me to help at all.

Wow! amazing , that means a scheme already exists called Rent to buy, excellent, thank you so much guys, I will be speaking to my friend and see how committed he is and by my helping him getting on the housing ladders also helps me increase the value of my funds sitting idle in a bank earning absolutely zilch interest, and I do not trust any other form of investments, and guaranteed savings bonds for 3 years only able to yield at the most 2% to 3% with some risk, My friend whom I want to help is self employed so his income does not depend on an employer employing him, which is relatively safe bet.

End of the day if it does not yield what I expected it to yield, i am not going to die, I would still have my property in my name. and if the value drops, which is unlikely, but in the long term property has always been a good bet.

Reply to the comment left by Mike at 05/09/2020 - 03:30
Hello Mike, I suggest you also consider schemes used by Social Landlords/Housing Associations. The A-Rent 2 Buy scheme is used along with B-shared ownership and C-stair-casing, all agreed at the start. Changing ownership from for example : 25% to 50% to 75% TO 100% when possible for your friend. Please do not be put off by the naysayers just be aware it could go wrong, like 40-50% of marriages do.

Reply to the comment left by Mike at 05/09/2020 - 03:30
You’re certainly not going to loose - you have the full rent value(no maintenance costs) plus up to 32% uplift on your investment if you wish to add it to the purchase price. I have 3 lined up for this, and they can choose what house/area they want as it will be their house after all.

Many thanks again, will contact you when the other party starts putting his interest into the scheme as he is new to it as I am, will need good studying first.
thanks Mike