Hypothetical tax question - University Let
Discussion
A married couple buy a house for their child when she is at University.
The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
The question is - who should declare the rental income on their tax return? The Child has her student loan and a part time job which pays £5k so has about £7k personal allowance. The parents are both higher rate tax payers. Although the house is in the Child's name to all intents and purposes the rent goes to Mum and Dad.
If the child declares the rent on her self Assessment is this tax evasion?
The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
The question is - who should declare the rental income on their tax return? The Child has her student loan and a part time job which pays £5k so has about £7k personal allowance. The parents are both higher rate tax payers. Although the house is in the Child's name to all intents and purposes the rent goes to Mum and Dad.
If the child declares the rent on her self Assessment is this tax evasion?
The loan to the daughter and the rental of the property probably need to be viewed as two distinct transactions.
If the parents are lending the daughter money then that’s between them and the daughter.
The daughter’s rental of her property is a matter between her and her tenants, and the income is hers.
She’s then responsible for repaying the loan.
All the stuff about the daughter living there rent free, and “taking over” the house when the loan is repaid doesn’t make much sense if it is actually her house. Of course if it’s not actually going to be her residence long-term there’s also the second property sdlt to consider when she wants to buy somewhere else if she’s not sold that one by then.
If you don’t play it off a straight bat you also potentially run up against all sorts of issues with tenancy agreements etc.
If the parents are lending the daughter money then that’s between them and the daughter.
The daughter’s rental of her property is a matter between her and her tenants, and the income is hers.
She’s then responsible for repaying the loan.
All the stuff about the daughter living there rent free, and “taking over” the house when the loan is repaid doesn’t make much sense if it is actually her house. Of course if it’s not actually going to be her residence long-term there’s also the second property sdlt to consider when she wants to buy somewhere else if she’s not sold that one by then.
If you don’t play it off a straight bat you also potentially run up against all sorts of issues with tenancy agreements etc.
LooneyTunes said:
If you don’t play it off a straight bat you also potentially run up against all sorts of issues with tenancy agreements etc.
I'd echo that. Whilst 'tenants' may start out as friends it can look very different down the line and they may not stay together the full 3yrs. Finding another 'tenant' may be problematic especially if the house is not divided like a HMO where tenants have their own bathroom etc. and unlike the student digs of the 70s kids today expect all mod cons 
If a parent is paying for their son/daughter in student housing they will also want all bills included in the rent, so expect the heating to be on 24/7That said if your daughter ends up living in it on her own it's still cheaper than Halls etc. and is a route I went down - except I own the house so she's still a first time buyer.
Armitage.Shanks said:
I'd echo that. Whilst 'tenants' may start out as friends it can look very different down the line and they may not stay together the full 3yrs. Finding another 'tenant' may be problematic especially if the house is not divided like a HMO where tenants have their own bathroom etc. and unlike the student digs of the 70s kids today expect all mod cons If a parent is paying for their son/daughter in student housing they will also want all bills included in the rent, so expect the heating to be on 24/7
That said if your daughter ends up living in it on her own it's still cheaper than Halls etc. and is a route I went down - except I own the house so she's still a first time buyer.
They're medical students so they'll be there for 6 years. It's close to the Uni so it would probably be an easy "Let" (if that was needed) but as there's no mortgage it's not a huge issue. The main reason for doing it was that it made sense financially especially if she decides to stay in London after graduating. The medium term intention of the parents is to gradually transfer all their assets into their kids names to mitigate IHT (which will not be an issue for a while). If a parent is paying for their son/daughter in student housing they will also want all bills included in the rent, so expect the heating to be on 24/7That said if your daughter ends up living in it on her own it's still cheaper than Halls etc. and is a route I went down - except I own the house so she's still a first time buyer.
I think strictly speaking the rent is the child's and she's making repayments to the parents so she's the one that needs to declare it on her SA return.
Biggy Stardust said:
Countdown said:
The question is - who should declare the rental income on their tax return?
The person that receives the rent. Rather simple, rather obvious.It's not who actually RECEIVES the rent - it's who is ENTITLED to the rent by dint of the fact that they legally own the property.
As the daughter is the legal owner of the property, it is her responsibility to declare the rental income and pay the appropriate tax arising on it. Whether she actually receives the rent or not is not relevant.
I know the answer to this one. Daughter collects the rent cheques, drinks them, then the renters get a solicitor’s letter from the parents for non payment of rent.
Sorry, that happened to me but it was a son rather than a daughter. How to lose a friend overnight. (I was the renter not the son).
Agreed, don’t assume they’ll all be friends after three years, friends and money are a bad mix.
Sorry, that happened to me but it was a son rather than a daughter. How to lose a friend overnight. (I was the renter not the son).
Agreed, don’t assume they’ll all be friends after three years, friends and money are a bad mix.
Defcon5 said:
What happens when the daughter finishes studying and gets a job/wants her own house?
Is she going to have to pay more income tax/stamp duty etc than she ordinarily would have, despite not receiving any income from the property?
She wont be paying a lot of income tax due to her personal allowance. She wont have to pay the 3% SDLT surcharge when she buys another house unless she decides to keep this one as well..Is she going to have to pay more income tax/stamp duty etc than she ordinarily would have, despite not receiving any income from the property?
Eric Mc said:
Did the couple buy the house and then "gift" the house to the child?
It sounds like the parents used their cash to buy the house putting it in the daughter’s name, but are treating the cash side as a loan to the daughter, with her then owning the house bought using the loan monies and the parents grabbing the rental income as a means of repaying the loan they made to the daughter. Countdown said:
A married couple buy a house for their child when she is at University.
The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
If so, the parents are the lenders. The daughter is the borrower, who owns the house legally and beneficially, and is repaying the loan from the rental income. The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
It has the air of an arrangement that will have to be thought about more when tax liabilities arise than it was before it was entered into.
BlackWidow13 said:
Eric Mc said:
Did the couple buy the house and then "gift" the house to the child?
It sounds like the parents used their cash to buy the house putting it in the daughter’s name, but are treating the cash side as a loan to the daughter, with her then owning the house bought using the loan monies and the parents grabbing the rental income as a means of repaying the loan they made to the daughter. BlackWidow13 said:
Countdown said:
A married couple buy a house for their child when she is at University.
The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
If so, the parents are the lenders. The daughter is the borrower, who owns the house legally and beneficially, and is repaying the loan from the rental income. The house is in the Child's name, there is no mortgage. Whilst the child is at University the house is rented out to 3 of her University friends. The parents collect the rental income from the 3 freinds, their daughter lives there rent free. The plan is for the house to be rented out until the purchase cost is repaid (probably about 7-10 years time). At that point the Child will take over the property (but as it's in her name already it will be an informal thing I assume)
It has the air of an arrangement that will have to be thought about more when tax liabilities arise than it was before it was entered into.
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