Interesting Landlords Tax Question

Interesting Landlords Tax Question

9:25 AM, 20th March 2013, About 10 years ago 7

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Interesting Landlords Tax QuestionMalcolm Ingham has raised an interesting landlords tax question

“Our son has a mortgage on a leasehold flat which he owns.Having gone through some lean years in a business he runs, the bank of mum and dad have loaned considerable sums to him, which he will find difficult to repay. He has offered to let us have his flat instead, as we already have a portfolio of let property. Could we have an agreement drawn up so that we become beneficial owners (but not legal owners) and be able to receive all rents and cover all ongoing costs? If so, would that avoid inheritance tax when we die, and in the meantime can we claim tax relief on the running costs, against the rental income?”

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Alex Williams

19:11 PM, 20th March 2013, About 10 years ago

So long as he is not going to go bust take a second charge and rent the flat off him. You do the repairs, letting get the income and can claim the repairs. Instead of mortgage interest you would claim the rent you pay him for the flat (which may be zero or whatever the deal ends up to be)

Mark Alexander - Founder of Property118

19:15 PM, 20th March 2013, About 10 years ago

I don't understand Alex, what makes you think the rent paid would qualify for tax relief?

@Malcolm - please see our Landlords Tax page and in particular the form at the bottom of the page which, if you complete, will allow me to introduce you to the accountancy firm which looks after my tax affairs and employs several experts in Landlord Tax. Link here >>>

Alex Williams

22:06 PM, 20th March 2013, About 10 years ago

You let the flat off him on a full repairing agreement. You pay him rent for the flat and you rent the flat out for more to a tenant. Your expenses are the repairs and your rent, your income is the rent you recieve. Unless I am missing something or have not understood the question it is pretty simple.

You should also be able to claim the interest on the money you have secuerd your second charge for so long as the cost of that money can be easily identified.

Mark Alexander - Founder of Property118

7:53 AM, 21st March 2013, About 10 years ago

@Malcolm - Will your sons mortgage lender give him permission to let. If so, why not simply manage the property for him? You can charge whatever you want to manage his property and it's up to you what services you include in the management. For example, you could charge him 1% for letting, management and maintenance and then anything you spend on the property would be a loss would it not? Please check this with HMRC though, I'm not a tax adviser. Also see this page >>>

If you write off the money you have loaned to your son, in seven years it will be IHT free. The property will still be in his name so no worries there either.


8:27 AM, 21st March 2013, About 10 years ago

Mark, If they manage the property for him they will have to pay income tax on their management fee and rent received! Their son can claim the tax relief on mortgage interest so he has no expenses, and he can claim tax relief on the management fee. His parents would be left will all expenses, repairs, voids etc. they need to look at how much they will actually receive in income once expenses and tax are deducted, plus all the work involved, to decide if they get enough out of it annually.

For tax purposes I think a management fee is easier than renting it from him. They could rent it on a self repairing lease with a clause allowing sub letting and claim the rent as a business expense offset against rent received, though it may be complicated for tax as they are related, they would need to check this.

His parents can still take a second charge on the property which would safe guard their loan if their son went Bankrupt or had other creditors after him at any time.

Mark Alexander - Founder of Property118

8:39 AM, 21st March 2013, About 10 years ago

Hi TJ - yes I agree, however, the management fee can be as much or as little as they agree so profits or losses can be manipulated as necessary between the family members as required, providing of course they enjoy a sufficiently close and trusting relationship.


6:13 AM, 22nd March 2013, About 10 years ago

Hi Mark,My son has been letting the property for some seven years as he has a BTL mortgage. He has just managed to get rid of a bad tenant and is renovating the property prior to re-letting it..

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