Letting a house with no mortgage to a family member
Discussion
Hopefully this is in the correct section and someone may be able to advise.
Family member A owns a property that is owned with no mortgage. Fully paid for.
Family member A wishes to let to Family member B.
Family member B is prepared to pay full market rate.
Family member A wishes to reduce their tax liability as much as possible, within the law of course.
My initial thought is that Family member A can choose to let the property for any figure they choose, between zero and what someone is prepared to pay, and the only tax burden would be on the income, what ever that may be.
For example, of the property was left empty, there would be no income and as a result no tax liability?
Am I being dumb here, or is it as simple as it sounds?
Family member A owns a property that is owned with no mortgage. Fully paid for.
Family member A wishes to let to Family member B.
Family member B is prepared to pay full market rate.
Family member A wishes to reduce their tax liability as much as possible, within the law of course.
My initial thought is that Family member A can choose to let the property for any figure they choose, between zero and what someone is prepared to pay, and the only tax burden would be on the income, what ever that may be.
For example, of the property was left empty, there would be no income and as a result no tax liability?
Am I being dumb here, or is it as simple as it sounds?
f1nn said:
Hopefully this is in the correct section and someone may be able to advise.
Family member A owns a property that is owned with no mortgage. Fully paid for.
Family member A wishes to let to Family member B.
Family member B is prepared to pay full market rate.
Family member A wishes to reduce their tax liability as much as possible, within the law of course.
My initial thought is that Family member A can choose to let the property for any figure they choose, between zero and what someone is prepared to pay, and the only tax burden would be on the income, what ever that may be.
For example, of the property was left empty, there would be no income and as a result no tax liability?
Am I being dumb here, or is it as simple as it sounds?
I don't think there is any obligation to rent it for a higher figure if they want to let it out for below market value.......Family member A owns a property that is owned with no mortgage. Fully paid for.
Family member A wishes to let to Family member B.
Family member B is prepared to pay full market rate.
Family member A wishes to reduce their tax liability as much as possible, within the law of course.
My initial thought is that Family member A can choose to let the property for any figure they choose, between zero and what someone is prepared to pay, and the only tax burden would be on the income, what ever that may be.
For example, of the property was left empty, there would be no income and as a result no tax liability?
Am I being dumb here, or is it as simple as it sounds?
But in this case there is no mortgage lender involved, the property is owned outright.
The question is from a tax perspective.
The property is let at full market value then Family member A pays the required tax through self assessment, but there is nothing stopping family member A agreeing to let the property for a any amount they choose...zero if they were so inclined I would assume?
Theoretically of course, I'm not suggesting form of tax avoidance of course.
The question is from a tax perspective.
The property is let at full market value then Family member A pays the required tax through self assessment, but there is nothing stopping family member A agreeing to let the property for a any amount they choose...zero if they were so inclined I would assume?
Theoretically of course, I'm not suggesting form of tax avoidance of course.
I'm a little puzzled by your question OP. What do you think might be the issue with HMRC if you let the property well below market rent value?
The main reason you will have an issue for doing something below market value with a family member is if you're "selling" the property or gifting it for inheritance tax purposes. Then, HMRC assume it is done at market value.
The main reason you will have an issue for doing something below market value with a family member is if you're "selling" the property or gifting it for inheritance tax purposes. Then, HMRC assume it is done at market value.
I think he means he wants to take the full market rate from a member of his family but declare to the taxman that no payment or very little payment was made.
I'm no expert but that does look like tax fraud to me, you'd have a hard time explaining where the money has come from if the taxman every got interested in your accounts.
I'm no expert but that does look like tax fraud to me, you'd have a hard time explaining where the money has come from if the taxman every got interested in your accounts.
No, as I've pointed out it's not me unfortunately, it's a family member.
Their thinking that came out in conversation is that if they've been declaring a rental income of X to the HMRC for the last 4 or 5 years, and now started declaring Y (let's assume for the purposes of this conversation, a substantially lesser figure) then that would in some way trigger an investigation of some kind.
My point being that if the declared figure was accurate, be it one pound or a million pounds, then they could investigate to their hearts content as no tax avoidance had taken place, and she could choose to let her property for whatever figure she saw fit.
I was just wanting to check that I was not advising incorrectly, but I can't see what I could be missing.
Their thinking that came out in conversation is that if they've been declaring a rental income of X to the HMRC for the last 4 or 5 years, and now started declaring Y (let's assume for the purposes of this conversation, a substantially lesser figure) then that would in some way trigger an investigation of some kind.
My point being that if the declared figure was accurate, be it one pound or a million pounds, then they could investigate to their hearts content as no tax avoidance had taken place, and she could choose to let her property for whatever figure she saw fit.
I was just wanting to check that I was not advising incorrectly, but I can't see what I could be missing.
as a letting agent - if a landlord wants to let below market value for whatever reason that's fine to do. You will have a TA showing the rent signed and so long as the income is declared that its above board.
As others have said - don't let to family.
Are the landlords UK based or overseas? different tax regs apply/disclosures if non resident.
As others have said - don't let to family.
Are the landlords UK based or overseas? different tax regs apply/disclosures if non resident.
HMRC has no power to force a property owner to rent out a property at full market rent (whatever that may be).
If they chose to allow someone to live in a property at a low (or even no) rent then that is a matter between the landlord and the tenant.
Obviously, whatever rental income is received should be returned to HMRC under (currently anyway) the Self Assessment system. That includes if the property is being rented at a loss as tax losses may come in useful later on if you ever do start renting the property at higher rental amounts and start to generate profits. Those losses incurred earlier can be used to reduce later profits from that rental property.
Of course, what you DON'T do is lie to HMRC by understating your rental income. That is simple tax fraud and is a criminal offence.
If they chose to allow someone to live in a property at a low (or even no) rent then that is a matter between the landlord and the tenant.
Obviously, whatever rental income is received should be returned to HMRC under (currently anyway) the Self Assessment system. That includes if the property is being rented at a loss as tax losses may come in useful later on if you ever do start renting the property at higher rental amounts and start to generate profits. Those losses incurred earlier can be used to reduce later profits from that rental property.
Of course, what you DON'T do is lie to HMRC by understating your rental income. That is simple tax fraud and is a criminal offence.
Eric Mc said:
...Of course, what you DON'T do is lie to HMRC by understating your rental income. That is simple tax fraud and is a criminal offence.
This. The OP could rent it to anyone and under declare the income. Its tax fraud either way.If its simply a question of what happens if you let a property below market, then that's fine. You can let it for what ever you want. My BTL's are let at below market because its cheaper to keep decent tenants than replace them every few years. HMRC do not expect to tax me at the market rate. they expect me to declare the actual income and expenditure and tax it based in that.
98elise said:
HMRC do not expect to tax me at the market rate. they expect me to declare the actual income and expenditure and tax it based in that.
I think very soon that they have changed the law so that you are taxed on the income and wont take into account expenditure unlike every other business.I assume the comment regarding not being able to claim allowable expenditure is part of the myth surrounding the new rules on claiming for mortgage interest.
I've heard many people speak about it in the media (including some so called experts) and friends all seem to think you'll no longer be able to claim any relief on mortgage interest; when all that is changing is that you'll only be able to claim tax relief at 20% after a taper period.
I've heard many people speak about it in the media (including some so called experts) and friends all seem to think you'll no longer be able to claim any relief on mortgage interest; when all that is changing is that you'll only be able to claim tax relief at 20% after a taper period.
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