Tax issues with charging below market rent to help a relative?

Tax issues with charging below market rent to help a relative?

10:56 AM, 10th September 2013, About 8 years ago 35

Text Size

Can anyone think of any potential tax or legal implications with letting out a property at below market rent to help a close relative? Tax issues with charging below market rent to help a relative?

I would of course put it all on a formal basis having no desire for a family relationship to sour due to financial reasons!

A close relative has recently returned after 7 years abroad. They have no credit rating, having left the UK as a young adult and lived in a country with a “closed” currency. In order to help until they have built up a credit rating, I am in a position to purchase a property on a BTL mortgage, and let it to them at a rent equal only to the mortgage payments. They would then be able to save for a deposit with the saving. I have no wish to make a profit from this relative, only to help until they have the 3 years credit rating the bank is asking for. There would be a time limit on the arrangement, which they know, being keen themselves to climb the property ladder.

Are there any legal or tax pitfalls awaiting us?



Comments

by Puzzler

16:14 PM, 11th September 2013, About 8 years ago

Reply to the comment left by "Neil Barlow FCCA ATT" at "10/09/2013 - 15:39":

Exactly - you cannot charge below market rent to generate a tax loss

by

16:30 PM, 11th September 2013, About 8 years ago

Just bear in mind that if the tenant is claiming housing benefit this will not be granted if there is a close realtionship, I am sure this is the case, check it out.

by Carol Thomas

18:46 PM, 11th September 2013, About 8 years ago

When my elderly father returned to the UK he paid the deposit on a BTL property and we obtained and paid the mortgage. His rent is approx one quarter of the market rent. My accountant only claims one quarter of the allowances given by the Inland Revenue. This has now worked successfully for the past four years. Our names are on the property and mortgage as he did not want anything to do with leaving property in his will as he will probably go over the threshold anyway. A good accountant can work wonders.

by Kirsty McGregor

18:56 PM, 11th September 2013, About 8 years ago

Reply to the comment left by "Jay Jay" at "10/09/2013 - 13:48":

Jay Jay/Mark - I think you are probably getting confused with the 'benefit in kind' calculation if you let to an employee. Then an employees income tax bill will be based on the different between the market rent that he would've paid if he had paid for it himself, minus whatever contribution he makes. Could it have been this discussion you had with tax office?

by Mark Alexander

19:30 PM, 11th September 2013, About 8 years ago

No confusion here Kirsty, that's what I was eluding to in my first comment

by Mark Alexander

20:15 PM, 11th September 2013, About 8 years ago

Reply to the comment left by "Carol Thomas" at "11/09/2013 - 18:46":

Hi Carol

I agree that a "good accountant can work wonders" and with respect I suggest you start looking for one if what you are saying is true.

You can offset 100% of your expenses against the mortgage up to the value of the rent your father is paying. No wonder the HMRC are happy with your current arrangement, you could legitimately be claiming 4 times as much!
.

by Carol Thomas

20:37 PM, 11th September 2013, About 8 years ago

Reply to the comment left by "Mark Alexander" at "11/09/2013 - 20:15":

Thanks Mark,
Now you've got me thinking - either I've got it wrong or he has! Will look into it and get clarification. He knows of your site, I mentioned that I was looking at your info on CGT. I truly hope that I've got it wrong. Thanks for all the help and info - I set up a small monthly payment through Paypal when I joined your site. Keep up the brilliant work and thanks again.

by Mark Alexander

21:45 PM, 11th September 2013, About 8 years ago

Reply to the comment left by "Carol Thomas" at "11/09/2013 - 20:37":

Thank YOU Carol, every little helps. I hope in your case that it is you who is mistaken and not your accountant. If that's not the case please let me know and I will introduce you to Neil Barlow who commented earlier on this thread. He is the accountant and tax adviser to my family. Check out his member profile. 🙂
.

by Carol Thomas

22:39 PM, 11th September 2013, About 8 years ago

Thanks, will do.....

by Mark Alexander

9:10 AM, 12th September 2013, About 8 years ago

Reply to the comment left by " " at "11/09/2013 - 16:30":

If you live in a property owned by a family member and pay them rent, you may be entitled to housing benefit. The council will want to take a detailed look at your agreement with your landlord. You won’t get housing benefit if:

you're not paying rent on a commercial basis
the arrangement has been set up to take advantage of the housing benefit system – this is called a ‘contrived tenancy’. For example, if your landlord only asks you to pay rent when you are not working (and so are eligible for housing benefit), but not when you are working (and earning too much to qualify for housing benefit), this would be a contrived tenancy.

Reference >>> http://england.shelter.org.uk/get_advice/housing_benefit_and_local_housing_allowance/housing_benefit_if_renting_from_a_family_member#housing_benefit_if_living_in_a_property_owned_by_a_family_member_
.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

BECOME A MEMBER