Allowing family members to live in property without rent?

Hi Frederick

There are several issues here.

If the occupier is a family unit then you're not necessarily straying into HMO territory - it's no different than, say a family with 4 or 5 children moving into a house.

It will almost certainly not be a licence to occupy if the tenants are to have exclusive possession. If you intend to give the occupiers exclusive possession then it will be an AST. Licences rarely exist so tread very carefully arouind this area. It doesn't matter if the tenants are related to the landlord. Avoid a sham agreement (e.g. saying the landlord can have access when they wich, when in reality it's never going to happen).

I can't answer the point about income tax, but do belive that CGT would be payable.

Families falling out are almost worse than where the parties are not related. Far more acrimonious and unless property documented often even less understanding than on a commercial basis (relationships seeming to trump waht was agreed!). Keeps me busy as an Expert witness!

If you set up the deal then you will need to jump throught all of the usual compliance hoops (EPC, gas check, How to Rent guide, etc.)

I was told as a young Solicitor many years ago never to act for friends or family, you never get thanked and it's your fault if anything goes wrong. Wise advice that I tried to follow and commend to you. When it comes to money and property (money's worth), keep it at arm's length.

Nottingham Licensing allow u to not have a License if family member lives in it. About the only thing Licensing has gave us EVER.

And yes, as Graham says with EPC etc.) I say too, gone are the days when family & mates ask me for cheap rent now. Years ago, I could have gave 'em keys & said Leave it with u. I've not got many outgoings, so I'll look after u.
Now we could go prison if I don't inspect & you've took smoke alarm down. I've got to go on Landlord training courses, we have all these extra costs we din't have years ago.

Reply to the comment left by Graham Bowcock at 04/08/2020 - 10:25
Hi Graham,

Thank you for your response.

I am having a little difficulty getting my head around what you have written. If a father allows his adult son or daughter or an aunt her nephew or niece to stay in the property, I was under the impression it was a licence. Hence would not need EPC, gas check, How to Rent guide, etc. There is no rent paid, no financial consideration, so how can an AST apply?

But regardless, the important question is if the area subsequently has selective licensing applied to it, will the property need to be licensed?

I am sure CGT will apply to the property but if no rent is received then I would have thought no income tax is payable by the father, aunt, owner of the property.

It will be different if the son, daughter, nephew, niece then decide to take in one or maximum two lodgers. They will have to account for this with HMRC on their own tax returns. Also, in this case, will they be considered as resident landlord with the lodger their licensee? In this scenario, they will need to get gas check and Right to Rent check but no EPC or How to Rent guide as they are resident landlords, and also no HMO (max 2 lodgers). Note, only one son, daughter, nephew or niece, not many! This is my understanding but please correct me if I am wrong.

On a bit of a tangent, but to say that I agree with Mick's post. I once rented out a house to relatives rent free. They were in it around 20 years. In that time the house required a new kitchen, roof repairs, new windows and doors. Also a new garden fence. All that is a lot of money to find when you have no income from the property. Also at some points they moved in younger family members and I had to get legal advise on what their rights were once the older generation were gone. It caused ill feeling that I was going out to work every day while some younger members were lying in bed until 3pm while I paid for them to have a roof over their head. There were a few rough moments relationship wise. Tread very gently and personally I would never do it again. Also when I got the property back it cost me thousands more to get it back to a rentable standard ( new bathroom, new carpets throughout and internal decoration throughout ). Family members also have no boundaries when it comes to asking for things and you might find it harder to say no to them than a tenant.

I did read somewhere a few years back that hmrc, for income purposes can assume you are receiving market rent, and you have to prove otheriwse. It was on a case where parent had gifted house to child but remained in house for £1per year, hmrc said either gift with reservation so counted for IHT and care assessments or child needs to pay income tax on market rent even though were recieving £1 rent only.

Reply to the comment left by Frederick Morrow-Ahmed at 04/08/2020 - 12:33
Hi Frederick,

There is a bit of confusion in your response and a bit of muddling of the issues. You need to take a step back ande al with the issue individually.

Firstly, forget that the landlord is related to the tenant. If the landlord lets the house it will NOT be on a licence (assuming that they are not lodgers in the landlord's own home). If you are granignt exclusign possession it will be a tenancy. It is true that there is a minimum rent for it to be an AST (£250 per year outside of London). However, I am not convinced with all the current compliance that you should look at doing anything other than an AST. If you do - get the documents drafted by a lawyer. Otherwise the easy route is an AST with a rent charged. Keep it simple.

As for HMO - you need to look at what licensing gets introduced locally, but if it's a single family unit occupying then it is not a HMO under general guidance.

If the landlord receives no money then I'd agree, no income tax, but alwasy worth just checking with your accountant to make sure this is correct. If the family members are employed by the landlord, there may be benefits in kind issues.
If the tenants take in lodgers, then that's a matter for them - provided the tenancy agreements permits them to do so.

I have from time to time advised families on occupation of houses by relatives and always advise to set the tenancy up properly, with a rent payable (even if it's a bit of a discount).

Why would you let someone live there for nothing? Houses cost money. Insurance, maintenance, etc.
It is perfectly legitimate to rent to family members as long as you haven't got a BTL mortgage on the property. If you have got a BTL mortgage family members can't live there anyway.
If they are on a low income they can claim Housing Benefit as long as you don't live in the property with them and it isn't a contrived tenancy (they pay the same every month regardless of income).

I have let houses to two of my children on proper ASTs with no problems whatsoever. They get a secure home in a location that suits them at below market rent. Apart from the below market rent bit I treat them exactly the same as any other tenant. All the proper paperwork and safety checks, repairs when needed, etc.
They know they have a good deal without feeling like they're sponging. I'm more than covering my costs and have an appreciating asset. We're all happy with the arrangement. Even the tax office get their slice.

Never ever let to relatives or let them use your home rent free for that matter. It always goes bellies up.

Income tax: renting out a property at less than market value means that expenses claimed are limited to the amount of rent received. In other words, nil profit/nil loss. In this instance since there is no rent charged then no expenses can be claimed.

CGT: is only chargeable upon disposal of the property. Nothing to do here until the property is sold.

When you mentioned that the landlord is not living on the property, that only affects the Rent-A-Room Scheme (income Tax). Nothing at all to do with CGT.

Incidentally, should you have a BTL mortgage, the terms will normally exclude family members from living in the property.