Should I let to family through my limited company?

by Readers Question

9:43 AM, 29th May 2020
About a month ago

Should I let to family through my limited company?

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Should I let to family through my limited company?

As the title suggests, I’m considering getting a BTL via a limited company with the intention of letting it to family – who would claim housing benefit. The family already lives in a council flat and benefits from getting housing benefit.

The council flat is not fit for them anymore and I thought instead of council placing them in accommodation (which would be an AST and at risk of being temporary) I can provide a more stable home with no intention of eviction.

Is there anything I need to consider, legally or financially, or is this simply another BTL via LTD Co.? I appreciate the risk of non payment and any risk of arguments arising from working with family.

Many thanks

Jay



Comments

Lindsay Keith

10:04 AM, 29th May 2020
About a month ago

I was advised many years ago never to 'act for family' if possible. Wise advice.

I offer no comment on the bones of your proposed transaction but appreciate your wish to be helpful.

Dennis Leverett

10:15 AM, 29th May 2020
About a month ago

Be very careful about letting to family because I think, maybe wrong, that family cannot claim housing benefit to rent from family. If you have no connection at all to the Ltd company maybe ok but if you caught out could be very expensive, is it worth the risk??? I don't think so.

Smartermind

10:18 AM, 29th May 2020
About a month ago

Reply to the comment left by Lindsay Keith at 29/05/2020 - 10:04
Equally there is another saying "Charity begins at home". Although this is not a charitable act, as the family will be paying rent, Jay appears to be well aware of the potential for conflicts to arise but if you can't help family out...

As landlords seek guarantors from tenants, they are usually family members "acting for family".

Steven

10:42 AM, 29th May 2020
About a month ago

Reply to the comment left by Lindsay Keith at 29/05/2020 - 10:04
I agree Lindsay, although having helped family myself I can totally see the laudability of Jay's intent and to be honest applaud it. I regret in my case however the member of my family I helped (my elder sister) took advantage. With family it's never at arm's length; the legal docs may say it is but with relatives blood is always thicker than water. Never underestimate the opportunity for emotional blackmail (in my case through my very elderly mother who's very close relationship to me was used as leverage through the stress my sister caused my mum with bemoaning my sister's own circumstances (ignoring they were wholly of her own making) "and wouldn't it be nice if Steven could help me" and so on). Jay, just be careful of all the smiles and gratitude up front; they might, in my experience at least, when it's all settled in one day be replaced with reverting to type - "Jay, are you ok with us not paying you this month only Covid has really hit us hard..." and all of a sudden you are subbing their life and income. Sure you can pressure them or just say no but it's never as easy as with an arm's length tenant who is not part of your family. If the Council pay you direct then it may be fine (but beware of tenant or Treasury friendly future changes in legislation that may change the rules on which you make your long term decisions now) and your family may of course be very different to mine (and great if it is if I may say) but just be aware of my experience at least. Despite what I say however you are to be applauded in your intent which I can totally understand.

LordOf TheManor

11:04 AM, 29th May 2020
About a month ago

For what it's worth, I had exactly the same horrible experience as Steven. My charity began at home..... with all the very best intentions. Never again! I was blackmailed - however it was innocent senior members of the family who paid the ultimate price by being denied access to their great grandchild. I was expected to cave in. The emotional pain was unimaginable and has decimated the family. I would never interfere with fate now. I would let the council sort it.

Mike W

11:15 AM, 29th May 2020
About a month ago

Jay,
No.
If it sounds too good to be true it probably is.
I will put the following to you.
If your family rented a property from an unconnected person or company (no links whatsoever) and obtained government support to do so, then no problem.
If your family rented a property from you directly or indirectly it could be considered fraud with you benefiting from the Government handout. (Note I said could be considered.) Many lenders (if you were to seek finance) prohibit renting to friends/family again for the fraud risk. The argument being your business income benefits from the government support to a family member.
Now you could go to great lengths to prove that everything was above board with multiple independent valuations on rent levels etc but the hassle would be immense and frankly it may be rejected outright without consideration of the merits.
And if you did not declare the obvious conflict of interest up front then, in my humble opinion, you could be in trouble.

Now I am not a member of the legal profession so I don't know the legal position, but what I have stated I consider to be reasonable.

All the above clearly is independent of your desire to help family etc.

Simon M

11:15 AM, 29th May 2020
About a month ago

It's years since I last worked with Housing Benefit, but it's difficult under the legislation and it's unlikely to have changed. The purpose of the legislation is to prevent fraud - it is taxpayers' money. When claiming HB your relative is asked to declare if they have any relationship with the landlord. If they name the company and don't name you, if discovered, they and you might be liable for fraud. You'll both be liable for repaying all the HB, and you also risk a conviction, fine and possibly even a prison term.
Google 'contrived tenancy'. I see Shelter advises the Council must consider each case on it's merits, but you'd have to be very open, always charge full market rent and make a strong case.

Yvonne Francis

11:16 AM, 29th May 2020
About a month ago

If your property is in a Company there is a problem if the property is worth £500,000 or more, either now or in the future. Its called an Envelope Tax. I gave my son and daughter a house within a company and I often think of living there, paying them rent, but the house is in an expensive area and is coming close to that figure.
https://www.gov.uk/guidance/annual-tax-on-enveloped-dwellings-the-basics

Steven

11:39 AM, 29th May 2020
About a month ago

Reply to the comment left by LordOf TheManor at 29/05/2020 - 11:04
Very sorry to read that LordOfTheManor, it sounds b awful and you have my greatest sympathy. Think on when you can that others of a similarly kind heart will see you did it all for the best of intent and those that harm you only show their true - and base - colours. Never a day goes by when I don't think of how I could have done things differently and I agree totally with you - avoid if you can. With my sister I've been Neville Chamberlain; now my help seal has been broken it's merely encouraged her to take more of her life's angst out against me rather than be satisfied. She's in my property and that's it there's not a thing I can do. Jay, once you're in it's a one way street. If you really feel you need to help, go in small (and I mean really small) and in a way you can easily turn the tap off when you want. I'd have done cash loans and taken out security with second charges. You can always just stop and say "sorry that's all I can afford". However, once members of your family are in your property that's it - you're well and truly in! And the other members of your family that love you for having done what you so generously did just become in the eyes of those you have helped the perfect leverage to get you to help them more, and more, and more ("but can't you just help them a bit more Jay, after all as they quite rightly say they are looking after your property for you aren't they... Go on, there's a nice lad, after all they are being nice to you by looking after your property aren't they so you can't really say no to them can you...? It's little Jimmy's birthday next week and I don't want his mummy upset on that day.") Your emotional and financial knackers are in their mangle. Eg in my circs I am now seriously thinking of taking out Japanese Knotweed insurance because I really wouldn't put it past my sister... notwithstanding she is living in my house rent free for the rest of her life (yes I was that dumb!) and my 95 year old Mum wouldn't know what Japanese Knotweed was if it made her a cup of tea. Just be careful (or in my case don't make the mistake of being a more successful younger brother than my more talented but fundamentally lazy and spendthrift elder sister who now sees me benefiting from my thrift and hard work). Just know one thing - among all the warm and fuzzy feelings you may experience up front of being able to help loved ones you won't think of every eventuality, least of all how love can suddenly and most unexpectedly involve pain in equal but opposite measure and where it is least expected or deserved...

Janet Carnochan

11:56 AM, 29th May 2020
About a month ago

About 10 years ago I asked a solicitor the same question and I was told legally the answer is no, you cannot rent a house to a family member and then get paid housing benefit, even if they would otherwise be entitled to HB.

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