Gifting money?
Discussion
My son is soon off to university next year, and I have a dilemma.
I have a property that I intended to sell, to buy a property in the university town, however a family member is currently using it. Instead of paying me rent can the family member gift the money to my son each month?
The net result is the same, but the person renting the property would not have to move. If the money comes to me and I fund his accomodation then I pay 40% tax on it.
Obviously if my son were staying in a house I owned then there would be no money changing hands and no tax to pay.
I have a property that I intended to sell, to buy a property in the university town, however a family member is currently using it. Instead of paying me rent can the family member gift the money to my son each month?
The net result is the same, but the person renting the property would not have to move. If the money comes to me and I fund his accomodation then I pay 40% tax on it.
Obviously if my son were staying in a house I owned then there would be no money changing hands and no tax to pay.
This will be a real mess...seek some pro advice.
They are rules around renting property to "connected people"'
In essence you will be renting a property to a connected person at below mkt rate (I.e.free) this could result in tax implications for the "connected person" and perhaps even you.
They are then further rules around gifting money "regularly"
They are rules around renting property to "connected people"'
In essence you will be renting a property to a connected person at below mkt rate (I.e.free) this could result in tax implications for the "connected person" and perhaps even you.
They are then further rules around gifting money "regularly"
What you're suggesting is tax evasion (as you are trying to avoid tax on your income).
The easiest way to achieve what you want is to gift the house to your son. That way the income is his and, as he's a student, he'll probably be earning less than the tax free allowance.
Slight downside in that you're GIVING him a house....
The easiest way to achieve what you want is to gift the house to your son. That way the income is his and, as he's a student, he'll probably be earning less than the tax free allowance.
Slight downside in that you're GIVING him a house....
If its tax evasion then I'll steer well clear!
I'll sell the property and buy in the university town, the net result is the same other than there is no money changing hands.
I don't want to gift my son the house. I'm just helping him with accomodation at uni, not for life
I'll sell the property and buy in the university town, the net result is the same other than there is no money changing hands.
I don't want to gift my son the house. I'm just helping him with accomodation at uni, not for life
Edited by 98elise on Saturday 31st October 21:48
Wilmslowboy said:
This will be a real mess...seek some pro advice.
They are rules around renting property to "connected people"'
In essence you will be renting a property to a connected person at below mkt rate (I.e.free) this could result in tax implications for the "connected person" and perhaps even you.
They are then further rules around gifting money "regularly"
Would this apply even if I buy a property in the university town, and my son lives there rent free? The plan was to buy a 3 bed place then let the other rooms to his mates. He already has a few mates that are keen on the idea as its cheaper than alternatives. They are rules around renting property to "connected people"'
In essence you will be renting a property to a connected person at below mkt rate (I.e.free) this could result in tax implications for the "connected person" and perhaps even you.
They are then further rules around gifting money "regularly"
There is no law that stops the tenant paying the rent directly to you son. HMRC couldn't care less. And the reason why they couldn't care less is because they will still want to tax YOU on the rental income. It is still your rental income.
Their view of the situation is that you are still receiving the rent and it is you who are gifting the money to your son.
Their view of the situation is that you are still receiving the rent and it is you who are gifting the money to your son.
In other words, rather than gifting the rent, gift the entire property. In that case, the rent becomes your son's and he has to pay the Income Tax on it, not you. As has been said, if you manage not to die within seven years of making the gift, there will be no Inheritance Tax Arising.
Obviously, gifting the property is a major undertaking and you lose all rights to the property. You can't own a property and then pretend the income it is generating isn't yours.
Obviously, gifting the property is a major undertaking and you lose all rights to the property. You can't own a property and then pretend the income it is generating isn't yours.
Eric Mc said:
There is no law that stops the tenant paying the rent directly to you son. HMRC couldn't care less. And the reason why they couldn't care less is because they will still want to tax YOU on the rental income. It is still your rental income.
Their view of the situation is that you are still receiving the rent and it is you who are gifting the money to your son.
Thats fair enough, and I can see why. Landlords would get tenants to gift money to any family member not working.Their view of the situation is that you are still receiving the rent and it is you who are gifting the money to your son.
The simple solution is to buy a property that my son will live in, then let the rooms to other students, most likely his mates. He mentioned it to a few mates and he seems to have sold the idea to them.
I really need to a bit more analysis on the finances first though.
98elise said:
The simple solution is to buy a property that my son will live in, then let the rooms to other students, most likely his mates. He mentioned it to a few mates and he seems to have sold the idea to them.
Let's hope they pay the rent then. I think 'Uni mates' can be pretty ephemeral.If your son lets out a room (or several) then from next year over £7,000 is tax free - even if he doesn't own the property.
https://www.moneyadviceservice.org.uk/en/articles/...
https://www.moneyadviceservice.org.uk/en/articles/...
nyt said:
If your son lets out a room (or several) then from next year over £7,000 is tax free - even if he doesn't own the property.
https://www.moneyadviceservice.org.uk/en/articles/...
Wrong.https://www.moneyadviceservice.org.uk/en/articles/...
You are referring to the "Rent A Room" scheme. This scheme is aimed specifically at "home owners" who let out a SINGLE ROOM in their main residence.
It is NOT for the use of buy to let landlords or houses of multiple occupation - like a student let.
Is the family member currently paying you rent?
You should note there is no income tax law which requires you to charge any rent on a let property, relative or not. If no rent is charged, there is no source of income so is outside the scope of income tax, and if a below market rent is charged, HMRC will seek to restrict expenses which can be offset against the rent. They cannot impose a market value rent.
You need to check your mortgage (if applicable) allows such letting.
You should note there is no income tax law which requires you to charge any rent on a let property, relative or not. If no rent is charged, there is no source of income so is outside the scope of income tax, and if a below market rent is charged, HMRC will seek to restrict expenses which can be offset against the rent. They cannot impose a market value rent.
You need to check your mortgage (if applicable) allows such letting.
I would think very carefully before buying a house for my son and assorted friends to live in. When I was a student, my housemates regularly feel behind with the rent, and your son might find himself in a rather difficult situation if he's the landlord as well, having to chase his friends for money constantly and possibly even evict them or chase their guarantors (i.e. parents) for money. That's before the issues that occur when they have a massive party and trash the place.
Whilst it may make sense financially, it might be less trouble just to use the rent you're receiving from the existing house (albeit net of tax) to help him pay rent on a student house for a couple of years.
Whilst it may make sense financially, it might be less trouble just to use the rent you're receiving from the existing house (albeit net of tax) to help him pay rent on a student house for a couple of years.
Alpinestars said:
You should note there is no income tax law which requires you to charge any rent on a let property, relative or not. If no rent is charged, there is no source of income so is outside the scope of income tax, and if a below market rent is charged, HMRC will seek to restrict expenses which can be offset against the rent. They cannot impose a market value rent.
Eric will know, but I suspect that HMRC could tax the Landlord at the market rent level if they considered that the no or token rent arrangement had been agreed to enable tax evasion by the Landlord.rfisher said:
Eric will know, but I suspect that HMRC could tax the Landlord at the market rent level if they considered that the no or token rent arrangement had been agreed to enable tax evasion by the Landlord.
If there genuinely ISN'T any income then there isn't any income tax payable, which means there isn't any tax evasion.If OP buys a property for his son to live in he doesn't need to charge him any rent.
Countdown said:
If there genuinely ISN'T any income then there isn't any income tax payable, which means there isn't any tax evasion.
If OP buys a property for his son to live in he doesn't need to charge him any rent.
Correct. If OP buys a property for his son to live in he doesn't need to charge him any rent.
There is a provision which imposes a MV rent, which is really an IHT anti-avoidance provision. This applies where a person donates cash to someone to buy a property but continues to live in the property at a below market rent. In such a case, MV rental income is deemed to arise for the donor of the cash.
This was brought in to stop people circumventing the IHT gift with reservation rules.
Countdown said:
rfisher said:
Eric will know, but I suspect that HMRC could tax the Landlord at the market rent level if they considered that the no or token rent arrangement had been agreed to enable tax evasion by the Landlord.
If there genuinely ISN'T any income then there isn't any income tax payable, which means there isn't any tax evasion.If OP buys a property for his son to live in he doesn't need to charge him any rent.
- Hello, I'm from HMRC. Can we have a chat about your tax return? OK
- So this guy used to pay £5,000 p.a. rent as a tenant which you declared for income tax? Yes, that's right.
- And now you let him live there rent free? Yes, he's such a nice guy.
- And he just happens to have made a tax free gift of £5,000 to you/your son at the end of the year? Yes, that's right, I told you he was a nice guy.
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