Do i have pay tax on daughters rent

Discussion in 'Finance, Property, Law' started by CHENMP, Mar 1, 2008.

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  1. After having serious issues with my last tenant and letting company resulting in me being £950 out of pocket i took my house off the rental market. This is my only property as i work overseas for the FCO and free accomodation is provided.

    My property remained empty for about a month and then my daughter asked if she and her fiancee could live in the house as there rent was £750pcm. I said yes they then stated that they would happily pay me £450 pcm so as not to be seen to be accepting charity. They also pay council tax etc.

    Do i have to declare this money to the tax man or is it like getting kids that live with you to contibute to living there etc.
  2. As a "private" arrangement you could keep the details to yourself and not 'fess up to HMRC, BUT you may drop yourself in it later.

    As a commercial arrangement you would be able to claim for expenses from the letting, and as most lettings are currently not making money accumulating a tax loss to be offset against any property gains later. If your daughter and her fiance fell out, with a commercial arrangement you would be able to recover your house without any real trouble- enforce the contract, within that formal arrangement. Nightmare scenario is if they marry then divorce, the leaving partner claims the house as joint family property as it was a gift on marriage! At worst it could cost you the house, at best a few thousand enforcing your rights.

    My opinion- set a formal arrangement either at commercial rent or pitched to make a small loss. If unemployed they should be able to get housing benefit, if earning you are helping with a house they couldn't otherwise afford.
  3. There is no threshold because:

    a: It's not a furnished holiday let.
    b. He has a job, which counts as main employment and any allowances will be offset against income from main employment.

    You could keep stum but the Taxman has a nasty habit of finding out e.g relationship breaks up and ex seeks revenge by telling the tax man.

    The easiest way is to draw up an agreement and set the rent at a sum which is written off by your expenses i.e. House insurance (buildings only) Mortgage (Interest Part Only) and any expenses you may have in running the business, thereby making a net loss at the end of the year. Therefore no tax is payable, because you only pay tax on profit. The ex has no claim on the house and cannot cause trouble later on if it all goes pear shaped.
  4. in_the_cheapseats

    in_the_cheapseats LE Moderator

    No - but I wish it was. I'd be paying a lot less tax. It depends on the total income of CHENMP, not just the house in isolation.

    I think you should be declaring it (taxman will be a bastard if you get caught out) but if you have any expenditure against mortgage, upkeep, visiting said house etc etc, you should have no real problem in writing a good deal of it against any tax liability.
  5. in_the_cheapseats

    in_the_cheapseats LE Moderator

    Forgot to ask and perhaps I missed something here - are you classed as an UK domicile as a FCO employee for tax purposes or are you an overseas tax dodger?!
  6. I am classed as a UK domicile and still pay Uk tax on my income, but not on my overseas allowances. The good thing is that my Tax free allowances are more than my wage.
  7. Set the rent to just not quite cover your expenses.
  8. Thanks for all the advice. Last year i did my own tax return working out that i owed the Taxman £275.00 which thay agreed with ( God knows how as i didnt have a clue )

    However they also adjusted my Tax code for this year to offset any profits made through rent. The previous monthly rent was £575. Therefore if i keep my rent at £450PCM am i likely to get a rebate ?

    Sorry bit of a biff when it comes to tax etc. My son also now lives in my house with my daughter will this make any difference ?
  9. Firstly, I am not an accountant, neither am I particularly good with managing money, so be warned.

    I understood that HMRC allowed landlords to take in lodgers, here is a LINK to an article that makes reference to the fact that you can earn up to £4,250 a year tax free. The far better government website on this is HERE

    I gather that to qualify, the owner (or a member of his immediate family) must be living at the address concerned. You mentioned that your son lived there, and perhaps that makes you eligible?

    I know this sounds crazy, but you could be better off reducing the rent to the £4,250 a year level, and not ending up having to pay any tax on the income. Or, of course, there may be other ways of making up the amount, there's scope for creativity with your son living there.

    Perhaps best to speak with the CAB, possibly even the tax office themselves? I hear they're pretty reasonable when it comes to answering questions from the public, and you don't have to identify yourself if asking or general advice.

    Hope this helps
  10. If you only have the one house - the one your 'family' (nudge) is living in, then I think you could possibly get away with treating it the same as any normal 'family living together in a house' situation. I would be pretty surprised if HMRC got too excited about how families divvy up the bills between them, but I could be wrong.

    Also, as it's your only house, you could consider it your 'Principal Private Residence', from which you happen to working away for a while.

    As mentioned before, it's only the profit you pay tax on in any case - do you have a mortgage on the property? If so and your monthly interest payment is more than the rent then nothing to worry about, nothing to pay(although needs to be entered on your tax return).

    If not, you could even take out a small mortgage on the property. Get an interest only one with the payments coming to £400-£450 a month. The rent then covers this - wihtout making any profit. The money raised could then invested. How's that for an idea?!
  11. As per above, but even though she is a relative, and I suppose a close one, it is so much better to have an agreement in place with her. For one thing it is a commercial arrangement - you are loosing possibly £300/month, by choice admittedly but you are entering into an agreement with her, and also, just as key, with her fiancee. What happens if they split up (is this their first house together, they may be unable to stand one another in close proximity) etc? What happens if somebody comes along and offers the full rate? Etc etc.
  12. I would be hesitant to enter into a formal leasing type agreement, as this could mean that the house becomes treated as a business by HMRC and raises issues over capital gains, etc.

    I'm not sure if mortgage interest would constitute a legitimate expense unless the property were regarded as being "commercial" and therefore liable to CGT.

    Surely easier to drop the rent by 100 quid a month and get them to pay other bills (such as insurance) plus make up the balance to your son?

    Whatever you do, probably best to take advice from the CAB, a solcitor, an accountant or HMRC themselves
  13. Some good advice there but you must take care not to create the opportunity for either of the two to claim possession of the house. You should lock your possessions in one room and continue to pay all the bills from your accounts. Then the Rent a Room rate applies and you don't have to pay tax on it - although I am pretty certain that you have to declare it. But you cannot then claim expenses!

    If you move to a formal letting arrangment, then it becomes an Assured Shorthold Tenancy, and all your expenses, (legal, mortgage interest etc) can be set against the rent. But the Revenue might take a keen interest if you were then charging a below market rent....

    The best way to try and work out how the tax system works is to use the Self Assessment tax site. You have to register well in advance and it is a pain to access, but once you are in and have used the software, it is mostly self-explanatory, and the summary at the end of the process is as good as it gets without an accountant at your elbow (if your tax affairs are straightforward, that is).

    To my knowledge, the site is accessible whether or not you have a tax return to complete.

  14. Speak to the Inland Revenue guy that frequents the forum. Cant think of his username though. Sorry.