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Living Rent Free In A Property Bought By Parents


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#16 mee

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Posted 19 March 2009 - 02:18 AM

This is not correct. You are in a common position and this is an acceptable arrangement by all interested parties, including the tax man. The key person here is your girlfriend. As a family member she can indeed live in her parents '2nd home' (even if they have 3 or 4) as you are intending to do. The benefit to the parents is that they do not need a BTL mortgage to purchase the property, and there is no tax implications as no income, as it is correctly being used by a family member.


Thanks for that - I didn't expect any tax implications but thought I had better check to satisfy my paranoia!

From a 'tenant' point of view, your talking about your girlfriends parents?????? Why would you want to abuse their hospitality by living rent free then make some attempt down the line to 'claim' some right to the property? Take this generous offer for what it is, and enjoy some security for a while, youve many years ahead as a mortgage slave.....


I think you have misunderstood! We absolutely do NOT want to abuse this and claim some right to the property! We will quite happily live there with no tenancy agreement in place; in fact that would be our preference! We don't see ourselves as being 'tenants', and neither do my partners parents. However, something in the back of my mind was telling me that by law, legally we may be required to have a tenancy agreement in place; this clearly isn't the case based on the advice given here - which again is great! Clearly if the worst happened and my partner and I split up (and we're both secure enough in our relationship to realise this is highly unlikely), I wouldn't expect to carry on living there, and I wouldn't expect to get anything out of it.

I think many people have mis-interpreted my original post, perhaps it wasn't concise enough....we recognise how lucky we are to have been offered this opportunity, and plan to make the most of it by saving like demons for the next few years, so that we can purchase the property from my partners parents and make the investment work for them. With regard to whoever mentioned DIY, the whole point of this is for us (ie myself and my girlfriend) to modernise the property. That is our commitment to this project - it would be unfair of us to put nothing into it - afterall, the plan is for us to purchase the property from my partners parents after 10 - 15 years, so any work we do is in our interests as well as her parents. I certainly wouldn't expect that money to be re-imbersed at any point, as someone suggested I should!

Thanks for your help - I just wanted to be sure that 1) there would be no tax implications we hadn't considered and 2) that we wouldn't be required by law to draw up a tenancy agreement. You've answered those questions and put my mind to rest - many thanks for that :-)

Mee.

Edited by mee, 19 March 2009 - 02:24 AM.


#17 Planner

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Posted 19 March 2009 - 09:43 AM

if it was me,I'd do an AST for a peppercorn rent and then move onto a periodical.


A tenancy agreement at an extremley low or no rent cannot be an AST. You should get a solicitor to draw up a common law tenancy agreement,

#18 johnny5thumbs

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Posted 20 March 2009 - 01:07 AM

This is not correct. You are in a common position and this is an acceptable arrangement by all interested parties, including the tax man. The key person here is your girlfriend. As a family member she can indeed live in her parents '2nd home' (even if they have 3 or 4) as you are intending to do. The benefit to the parents is that they do not need a BTL mortgage to purchase the property, and there is no tax implications as no income, as it is correctly being used by a family member.


I apologise and stand corrected - can't find any updated case law on HMRC website. Maybe it was just a discussion paper that never entered the staute books. Anyway, here is the link to HMRC guidance for claiming expenses against property let at an uncommercial rent which your partner's parents might find useful ...

http://www.hmrc.gov....UAL/PIM2220.htm

#19 live in hope

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Posted 21 March 2009 - 08:27 PM

Hello everyone - this is my first post!

We're in a in a unique situation - my partners parents would like to buy a 2nd property as an investment property. They would like us to live in it rent free, giving us the opportunity to save the cash we are currently paying in rent to a private landlord. We will amass a sizeable chunk of cash to use as a deposit to purchase the house from them before they retire (10 years). It's an excellent opportunity for us all.

My question is, from a legal standpoint, where do we stand? Are we effectively classed as renting tenants, even though we are living rent free, and therefore will we need to get a tenancy agreement drawn up? It seems a bit silly as we obviously trust each other enough to put ourselves in this situation, however if we need to satisfy legal requirements then we'll obviously have no choice but to do so.

And secondly, and I'm probably just being paranoid here (that's what modern world living does to you), we're not going to be hit with some kind of bizarre tax due to having the benefit of living rent free are we?

If there's anything else you guys (and girls!) can think of from a legal point of view that we may not have considered, we'd really appreciate any advice, pointers etc. We're all more than happy and comfortable with the situation from a risk and moral standpoint.

Many thanks in advance,

Mee!

Hi,
Most of the comments are true enough. What i dont understant is how it is an investment property for them if they will get no income from it, and then sell it to you presumably cheaply to help you on your way. Why can they not help you buy your own and keep things simple, and seperate from their tax afairs. It will be in their estate until you buy it from them and if anything happens to them it will involve you home as well. I speak fom experience of one who currently has a son and girlfriend in a house i own, and have pretty much written it off.

#20 live in hope

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Posted 21 March 2009 - 08:29 PM

This is not correct. You are in a common position and this is an acceptable arrangement by all interested parties, including the tax man. The key person here is your girlfriend. As a family member she can indeed live in her parents '2nd home' (even if they have 3 or 4) as you are intending to do. The benefit to the parents is that they do not need a BTL mortgage to purchase the property, and there is no tax implications as no income, as it is correctly being used by a family member.

The only place Ive heard of governments charging tax on 'potential' rent values of empty property is in Spain. It has not happened here.

From a 'tenant' point of view, your talking about your girlfriends parents?????? Why would you want to abuse their hospitality by living rent free then make some attempt down the line to 'claim' some right to the property? Take this generous offer for what it is, and enjoy some security for a while, youve many years ahead as a mortgage slave.....



#21 live in hope

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Posted 21 March 2009 - 08:34 PM

This is not correct. You are in a common position and this is an acceptable arrangement by all interested parties, including the tax man. The key person here is your girlfriend. As a family member she can indeed live in her parents '2nd home' (even if they have 3 or 4) as you are intending to do. The benefit to the parents is that they do not need a BTL mortgage to purchase the property, and there is no tax implications as no income, as it is correctly being used by a family member.

The only place Ive heard of governments charging tax on 'potential' rent values of empty property is in Spain. It has not happened here.

From a 'tenant' point of view, your talking about your girlfriends parents?????? Why would you want to abuse their hospitality by living rent free then make some attempt down the line to 'claim' some right to the property? Take this generous offer for what it is, and enjoy some security for a while, youve many years ahead as a mortgage slave.....

The only tax your partners parents need worry about is CGT. If they buy at the bottom of the market, and in 10 years there is a gain in value, it will be subject to tax. It will have to be sold to you at market value or the taxman will not consider it to have been a sale at arms length. In the mean time it will be part of their estate for inheritance tax purposes.

#22 live in hope

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Posted 21 March 2009 - 08:37 PM

I apologise and stand corrected - can't find any updated case law on HMRC website. Maybe it was just a discussion paper that never entered the staute books. Anyway, here is the link to HMRC guidance for claiming expenses against property let at an uncommercial rent which your partner's parents might find useful ...

http://www.hmrc.gov....UAL/PIM2220.htm

They wont be able to claim for any maintainance expenses against their tax unless they are getting and declaring a market rent for house.

#23 live in hope

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Posted 21 March 2009 - 08:42 PM

There could be income tax implications for your partner's parents - HM Revenue & Customs now penalise owners who let their sons / daughters live rent-free or reduced rent. They (if they find out) could assess the market rent, and tax the your partner's parents on the difference. Maybe best to check with an accountant on the exact position in your case.

Is this true. If there is no rent to declare and no thing claimed for tax relief against the house, where is the income to be taxed.




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