Short Term Tenancy

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tony wright

Original Poster:

1,004 posts

249 months

Tuesday 12th September 2017
quotequote all
I'm presently selling my flat as my kids have now vacated it (they lived there and I paid mortgage) and moved abroad. I've never rented it, but had a viewing early this week and couple want to buy it.

Presently, they are waiting for their late Mothers house to sell, so have asked if they could rent it for a 6 month tenancy until the house sells and releases their inheritance (easily cover the cost of flat). I've agreed and understand there is no guarantee they will complete the purchase at the end of the STT, but willing to risk it. So, do I have to tell my Mortgage supplier and the tax man (will be rented through an agency)? I ask, because if the purchase go's through, the rent for the 6 months, minus my small monthly mortgage cost and the agency fee will be deducted from the property cost, so neither myself or purchaser will be out of pocket from the original asking price.

Red Devil

13,055 posts

207 months

Tuesday 12th September 2017
quotequote all
tony wright said:
So, do I have to tell my Mortgage supplier and the tax man (will be rented through an agency)?
You don't have to do either of those things but you need to be fully aware of the potential consequences of failing to do so.

http://www.thisismoney.co.uk/money/experts/article...
http://www.thisismoney.co.uk/money/experts/article...

Concealing income from HMRC is definitely not a good idea. Do you already have any income where tax is not deducted at source?
If not, you will need to declare the rental income on a self-assessment return after the end of the current tax year (05/04/18).

You may find these links useful.
https://www.litrg.org.uk/latest-news/news/150625-s...
https://www.gov.uk/government/uploads/system/uploa...

Your dealings with your mortgage provider and HMRC are a private matter between you and them and no concern of a rental agency.

tony wright

Original Poster:

1,004 posts

249 months

Tuesday 12th September 2017
quotequote all
Okay, thanks for links. Issue with self assessment is if they buy, I give the rent back to them, so if I pay tax on the income can I claim it back, or do I have to write it off as another expense. I mentioned the letting agents (same company that's selling flat for me) as they are VAT registered, so will this mean the tax man gets to see that the flats being let. I'm retired so only pay tax on my public sector pension.

superlightr

12,842 posts

262 months

Tuesday 12th September 2017
quotequote all
why not just rent it to them and keep the rent? it gives them an incentive to buy it.

otherwise you are effectively paying them to live there>? even if they buy it. What about maintenance issues during the tenancy? be in the tenants interest to find as much as possible for you to do and repair.

Either rent it to them properly or not at all I would suggest. Also would recommend using a Letting agency who specialises rather than a general estate agent.

Yes you must/should declare the income.

Edited by superlightr on Tuesday 12th September 22:41


Edited by superlightr on Tuesday 12th September 22:42

anonymous-user

53 months

Tuesday 12th September 2017
quotequote all
Surely if you give the rent back to them then you won't have any income to declare?



matjk

1,101 posts

139 months

Tuesday 12th September 2017
quotequote all
These deals seldom work out ! If house prices go up they will expect to buy it at today's price , if they go down then they will renegotiate. You will be losing as they are renting your house. You are deprived of its use for 6 months. Is there something special about this flat or the buyer as you would think it's easier just to find another buyer or them to look when they have the money. Don't forget if you sell today you can stick the money in the bank and get the interest for 6 months . The deal you suggest offers you nothing and they gain plenty . Obviously your call but I wouldn't do it

Red Devil

13,055 posts

207 months

Tuesday 12th September 2017
quotequote all
tony wright said:
Okay, thanks for links. Issue with self assessment is if they buy, I give the rent back to them, so if I pay tax on the income can I claim it back, or do I have to write it off as another expense.
Hmmm. That means the effective gross income is zero: the same net result as letting them live there rent free.
It's not exactly a common scenario so whether such an arrangement would arouse the suspicion of HMRC if it did discover it I can't say.

tony wright said:
I mentioned the letting agents (same company that's selling flat for me) as they are VAT registered, so will this mean the tax man gets to see that the flats being let.
VAT returns are aggregated figures without that level of detail. HMRC won't be interested in delving into the agency's ledgers unless it suspects irregularities in its bookkeeping.
There is a possibility that it might get selected for a random HMRC compliance audit but the chances of that are very slim.
I have only been involved with one of those once in my entire working life.

tony wright said:
I'm retired so only pay tax on my public sector pension.
No income at all from investments? Don't forget that the tax treatment of company dividends changed w.e.f. 6th April 2016.
http://www.telegraph.co.uk/investing/shares/will-d...
That has self-assessment implications for a lot of people for the tax year 06/04/16 to 05/04/17.
If you do find you're now caught in the self-assessment net you only have just over 3 weeks left in which to register.
The filing deadline depends on whether you opt for a paper or online return - https://www.gov.uk/self-assessment-tax-returns/dea...

From another perspective it's not just the risk of the couple not completing the purchase.
Worst case is that they don't pay their rent, your property gets trashed, and you have to take them to court to repossess it.
Not trying to frighten you to death but you need to be fully aware of all the downsides of being a landlord.
While an agency can relieve you of most/all of the legal/administrative burdens there is a limited amount it can do to protect you from a rogue tenant.

Just my 2p worth. Go into it with your eyes fully open.

superlightr

12,842 posts

262 months

Wednesday 13th September 2017
quotequote all
Red Devil said:
[
tony wright said:
I mentioned the letting agents (same company that's selling flat for me) as they are VAT registered, so will this mean the tax man gets to see that the flats being let.
VAT returns are aggregated figures without that level of detail. HMRC won't be interested in delving into the agency's ledgers unless it suspects irregularities in its bookkeeping.
There is a possibility that it might get selected for a random HMRC compliance audit but the chances of that are very slim.
I have only been involved with one of those once in my entire working life.
.
Just to add our procedure as a Letting Agency - we have to each year declare and list all UK landlords to HMRC For all overseas landlords its all income less expenditure and tax.


don't fek around with the HMRC - pay the tax that's due.

SantaBarbara

3,244 posts

107 months

Wednesday 13th September 2017
quotequote all
tony wright said:
I'm presently selling my flat as my kids have now vacated it (they lived there and I paid mortgage) and moved abroad. I've never rented it, but had a viewing early this week and couple want to buy it.

Presently, they are waiting for their late Mothers house to sell, so have asked if they could rent it for a 6 month tenancy until the house sells and releases their inheritance (easily cover the cost of flat). I've agreed and understand there is no guarantee they will complete the purchase at the end of the STT, but willing to risk it. So, do I have to tell my Mortgage supplier and the tax man (will be rented through an agency)? I ask, because if the purchase go's through, the rent for the 6 months, minus my small monthly mortgage cost and the agency fee will be deducted from the property cost, so neither myself or purchaser will be out of pocket from the original asking price.
Do they look absolutely genuine?

NDA

21,485 posts

224 months

Wednesday 13th September 2017
quotequote all
SantaBarbara said:
Do they look absolutely genuine?
Good point - and one that shouldn't be ignored.

Secondly, what happens if the value of your property increases or decreases during this time?

anonymous-user

53 months

Wednesday 13th September 2017
quotequote all
We bought our current house under such an arrangement.

Paid the market rent for 12 months and agreed 3 estate agent to value and take the average price (don't know how I would have reacted if there was an outlier)

Worked OK but the vendor got the full rent. I reckon I overpaid but it was 2006 and things were a bit different then!

I could have walked away at any stage up to exchange though.


tony wright

Original Poster:

1,004 posts

249 months

Wednesday 13th September 2017
quotequote all
Appreciate all the replies, thanks. Last question please. My Wife presently
completes her self assessments, as she runs a very small running club. Her annual income is approx 5k and I also use her marriage allowance against my pension. Would it be sensible to put the tenancy in her name (if it's possible) as the rental income from the SHT would possibly still be inside her threshold? Mortgage on the flat is in both our names.

anonymous-user

53 months

Wednesday 13th September 2017
quotequote all
tony wright said:
Appreciate all the replies, thanks. Last question please. My Wife presently
completes her self assessments, as she runs a very small running club. Her annual income is approx 5k and I also use her marriage allowance against my pension. Would it be sensible to put the tenancy in her name (if it's possible) as the rental income from the SHT would possibly still be inside her threshold? Mortgage on the flat is in both our names.
I have made this point previously but if you give them the rent back then you won't have any income.

tony wright

Original Poster:

1,004 posts

249 months

Wednesday 13th September 2017
quotequote all
I haven't met the future purchasers as the viewings were all done through EA. they are doing all the relevant checks (so far, no children, pets and non smokers) to make sure everything is financially viable as well as deposit etc.

That's why I asked about the tax man, if they buy, I haven't gained anything in rent.

anonymous-user

53 months

Wednesday 13th September 2017
quotequote all
tony wright said:
.

That's why I asked about the tax man, if they buy, I haven't gained anything in rent.
In which case there will be no tax to pay.

superlightr

12,842 posts

262 months

Wednesday 13th September 2017
quotequote all
desolate said:
tony wright said:
.

That's why I asked about the tax man, if they buy, I haven't gained anything in rent.
In which case there will be no tax to pay.
desolate - appreciate what your view is but is that just a personal view or from professional experience?

I would query this as if they pay rent then yes you have received the rent which you need to declare & pay tax on.
If you then sell the property to them for £x - rent or minus whatever then that's a totally separate transaction and not offsetable.

The people owning the property are the landlords - irrespective of what you put on the tenancy agreement. If you both own the flat then you both should be listed as landlords. You as and owner will be entitled to the income and passing it away to another - you still are the landlord for tax purposes as I understand it for landlord/tenant HMRC regs.

OP you are making this way too complicated for such a small amount of money and opening up a can of worms with the HMRC. Don't mess around. Just do a normal tenancy and pay your tax on it. Sell the property in the normal manner. If this was a mulit million pound deal and wrangle around tax then fine take advice and try but correct me if I'm wrong its not its a few thousand pounds of which its the tax your trying to save being a few hundred. Your wife can still get/use her personal allowances on her part of the rent.






Edited by superlightr on Wednesday 13th September 13:06


Edited by superlightr on Wednesday 13th September 13:12

anonymous-user

53 months

Wednesday 13th September 2017
quotequote all
superlightr said:
just querying this as if they pay rent then yes you have received the rent which you need to declare & pay tax on.
If you then sell the property to them for £x - rent or minus whatever then that's a totally separate transaction and not offsetable.
If he returns the rent and receives normal value for the house it would be surely?

superlightr

12,842 posts

262 months

Wednesday 13th September 2017
quotequote all
desolate said:
superlightr said:
just querying this as if they pay rent then yes you have received the rent which you need to declare & pay tax on.
If you then sell the property to them for £x - rent or minus whatever then that's a totally separate transaction and not offsetable.
If he returns the rent and receives normal value for the house it would be surely?
no not in my experience as a letting agent and understanding of HMRC tax rules for properties - its rent. full stop.

If he then gifts money away that's a separate event. nothing to do with the income he has received as rent. HMRC I'm sure will agree that its rent and tax is due on it.

OP talk to HMRC get their written advice.

anonymous-user

53 months

Wednesday 13th September 2017
quotequote all
superlightr said:
no not in my experience as a letting agent and understanding of HMRC tax rules for properties - its rent. full stop.

If he then gifts money away that's a separate event. nothing to do with the income he has received as rent.
Fair enough - it's your game not mine. With a letting agent involved I suppose it does complicate it as I can't imagine they'll be issuing credit notes.

KevinCamaroSS

11,553 posts

279 months

Wednesday 13th September 2017
quotequote all
I may well be stating the obvious, but, just sell it to someone else. Don't forget that as it is not your primary residence you, and your wife, will also be liable for capital gains tax.