Who can be the landlord?
Discussion
I'm considering buying a house in the town my daughter is at university. My thoughts are I'd rather run a second house than end up subbing my daughter to the tune £4-5k per year for rent.
Obviously I'd look to housing her and then renting out additional rooms to other students - probably at least two.
Now my question is, whilst I would own the house is there any reason why my daughter could not be the landlord? I'm thinking tax efficiency here. If I was the landlord any net income would be taxed at my marginal rate whereas my daughter would probably get to keep the gross. Probably talking £6-7k pa.
Are there any other things I should be wary of when going down the letting route?
BTW, there would be no mortgage on the property so no BTL mortgage issues.
Obviously I'd look to housing her and then renting out additional rooms to other students - probably at least two.
Now my question is, whilst I would own the house is there any reason why my daughter could not be the landlord? I'm thinking tax efficiency here. If I was the landlord any net income would be taxed at my marginal rate whereas my daughter would probably get to keep the gross. Probably talking £6-7k pa.
Are there any other things I should be wary of when going down the letting route?
BTW, there would be no mortgage on the property so no BTL mortgage issues.
If she is under 18, and it's your money that is used to buy the property, then HMRC will deem it to be your income even if the house is in her name (and actually I am not sure if under 18's can even be direct property owners).
If she is over 18 then no problem, except that you will have to make a gift to her of the purchase price, which has some IHT implications if you are planning to die before 2020.
If she is over 18 then no problem, except that you will have to make a gift to her of the purchase price, which has some IHT implications if you are planning to die before 2020.
Newc is absolutely right. Often UK tax can be extremely complex. In this case - it's dead simple.
You own the asset.
The asset generates some income.
ergo - it's your income.
Do you have a wife?
You could buy the property in joint names and split the rental income. There might be some tax savings there. There would DEFINITELY be some Capital Gains Tax as and when the property was eventually sold and (hopefully) sold at a profit.
You own the asset.
The asset generates some income.
ergo - it's your income.
Do you have a wife?
You could buy the property in joint names and split the rental income. There might be some tax savings there. There would DEFINITELY be some Capital Gains Tax as and when the property was eventually sold and (hopefully) sold at a profit.
Eric Mc said:
Newc is absolutely right. Often UK tax can be extremely complex. In this case - it's dead simple.
You own the asset.
The asset generates some income.
ergo - it's your income.
Do you have a wife?
You could buy the property in joint names and split the rental income. There might be some tax savings there. There would DEFINITELY be some Capital Gains Tax as and when the property was eventually sold and (hopefully) sold at a profit.
Eric Mc / Newc - thanks. I thought it unlikely so that's cleared it up.You own the asset.
The asset generates some income.
ergo - it's your income.
Do you have a wife?
You could buy the property in joint names and split the rental income. There might be some tax savings there. There would DEFINITELY be some Capital Gains Tax as and when the property was eventually sold and (hopefully) sold at a profit.
The purchase will be joint with my wife so 50% of the income will be taxed at her marginal rate which is lower thus offering some saving. I'm aware of the CGT issue but there'll have to be some dramatic change to the housing market in the next 5 years for that to become a significant issue!
There might be some mileage in buying the property through a limited company. In the past this is something I would generally have advised against. However, the CGT landscape has changed radically over the past 4-5 years and now a limited company might be worth exploring.
The advantage there is that rental profits would be taxed at Corporation Tax profit rate of 20% - up to £300,000.
However, the disadvantages a would be the extra complexity and bureaucracy of handling a limited company and the loss of some reliefs if there was a gain on disposal. Having said that, limited companies still claim the old "Indexation" on their gains and pay CGT at Corporation Tax rates.
It is worth investigating, I would suggest.
The advantage there is that rental profits would be taxed at Corporation Tax profit rate of 20% - up to £300,000.
However, the disadvantages a would be the extra complexity and bureaucracy of handling a limited company and the loss of some reliefs if there was a gain on disposal. Having said that, limited companies still claim the old "Indexation" on their gains and pay CGT at Corporation Tax rates.
It is worth investigating, I would suggest.
I might well look in to that as the plan is to keep the property for at least 5 years so my daughter would only occupy for the first 2 - 3 years.
There again, gross income will probably be about £7K pa which might net down to £4k depending on what can be offset as expense. Total tax split between my wife and I would be £1300 versus £400 as a company. Got to weigh up if saving £900 pa justifies the additional complexity!
There again, gross income will probably be about £7K pa which might net down to £4k depending on what can be offset as expense. Total tax split between my wife and I would be £1300 versus £400 as a company. Got to weigh up if saving £900 pa justifies the additional complexity!
Could you not just set up a rental agreement between you and your daughter for the whole house, then allow her to sub let the extra rooms out. For example, you charge her a rent of £3k/year which would be taxed at your rate (as your income) and then she charges the rent for the other rooms in the house and is taxed at her rate as her income (I assume, within her tax free allowance).
You wouldn’t save tax on the whole amount, but would be better off this way.
You wouldn’t save tax on the whole amount, but would be better off this way.
The daughter would now, of course, have taxable income which she would need to return to HMRC somehow.
Even if she was paid below tax and NI thresholds, she STILL might need to return the income if she has had other income during the year, such as a part time job or ad hoc student work.
Alternatively, the parent might need to register as an employer so that PAYE (and possibly NI) is deducted correctly and paid over to HMRC.
Even if she was paid below tax and NI thresholds, she STILL might need to return the income if she has had other income during the year, such as a part time job or ad hoc student work.
Alternatively, the parent might need to register as an employer so that PAYE (and possibly NI) is deducted correctly and paid over to HMRC.
NightDriver said:
Could you not just set up a rental agreement between you and your daughter for the whole house, then allow her to sub let the extra rooms out. For example, you charge her a rent of £3k/year which would be taxed at your rate (as your income) and then she charges the rent for the other rooms in the house and is taxed at her rate as her income (I assume, within her tax free allowance).
You wouldn’t save tax on the whole amount, but would be better off this way.
I would have thought that HMRC would frown upon a letting rate below market rate - particularly to a family member.You wouldn’t save tax on the whole amount, but would be better off this way.
caiss4 said:
NightDriver said:
Could you not just set up a rental agreement between you and your daughter for the whole house, then allow her to sub let the extra rooms out. For example, you charge her a rent of £3k/year which would be taxed at your rate (as your income) and then she charges the rent for the other rooms in the house and is taxed at her rate as her income (I assume, within her tax free allowance).
You wouldn’t save tax on the whole amount, but would be better off this way.
I would have thought that HMRC would frown upon a letting rate below market rate - particularly to a family member.You wouldn’t save tax on the whole amount, but would be better off this way.
BoRED S2upid said:
Really? would they give a toss? where does it legally state you have to rent a property for a set amount? If I want to rent a property for half the market value and secure a long term very happy tennant then thats my business and my loss. Ofcourse as Eric has rightly stated about if you did this and your daughter then sublets and makes a profit (which she will the enterprising young tyke) she will have to declare it but ofcourse tax free earnings have risen.
So then I could let to her at a peppercorn rent and she could sub-let at market prices?Eric Mc said:
And she pays the tax on "her" rental income.
Er yes. She's already on the HMRC radar screen owing to occasional work that was PAYE so has had to do tax returns already.This looks like it could be workable because any excess net income could cover her additional costs instead of me providing hand outs!
I'd retain the council tax liability so I'd probably just charge that as the annual rent.
Does that sound workable?
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