"Free rent" work around

[namechangeforme23]

In talking to a friend I ended up down a dark hole on google, and thought I would consult the hive mind to see any issues (other than the obvious) or alternatives!

Scenario:
My friend is due to go abroad to work next year, for up to 2 years. His plan was to keep his house here (UK) and rent it out, so that he has a base to come back to if it all goes wrong/isn't what he expects out there (Australia). However, in talking to an accountant he has been advised that he would end up paying capital gains tax on the rental income (or similar, this is what he told me), and is now considering selling before moving out there.

Unlikely solution:
He was planning on renting to one of his friends (OddFriend for clarity). I haven't met OddFriend, but have heard he is a little free and loose with things like tax returns for his job, which is where my concern for my friend has come from). OddFriend has apparently researched and told my friend that he doesn't have to rent it for money, he can just let him live there for free (he would pay bills and council tax)... but that OddFriend would set up a UK bank account in his own name, give my friend the card to use, and that he would pay rent into that.

So OddFriend would still actually be paying my friend rent, but not officially, so as to circumvent tax, capital gains tax, and my friend having to sell his property.

Yes, not my monkeys not my circus - I'm not planning on getting overly involved in it, other than telling my friend to be careful and look into it.

But curiosity got the better of me, and other than the debit card not being in my friend's name/potential for being stopped or questioned over it while abroad... and the obvious issue of nothing tenancy related being in place and potential squatter etc etc...

Does anyone have any experience of renting a UK property out while living/working abroad? Is the accountant right that there would be capital gains tax to pay on the rental income? I had always thought that was for a second owned property being sold...

As far as I'm aware, CG is only paid when property is sold not rented out. I would advise your friend against having a "no tenancy", tenancy because one can be enforced.https://helix-law.co.uk/faq/how-to-evict-a-tenant-without-a-tenancy-agreement/#:~:text=A%20landlord%20can%20serve%20a,the%20default%20is%20six%20months.
Also, your friend would be need to have gas safety checks, EIRC and EPC in place. If they didn't and they tried to evict, the judge would rule in favour of the tenant.

It's income tax payable on rental income, not capital gains. CGT when sold if not your principle primary residence, but there are some allowances and reductions that can be made if the property has been your primary residence at some point (can't remember exactly how long now). Odd friends idea sounds a lot like tax avoidance and I'd stay clear with a barge pole. It's one thing to genuinely let someone live somewhere for free, it's a totally other thing to falsify the name to which taxable income received. Irony is, your Australia friend would still be entitled to full personal allowance in UK, assuming a UK national, so if no other source of UK income, may end up in effect not paying tax, or very little tax, on rental income perfectly legitimately.

Excellent - thank you both! I will pass this info on to my friend, and maybe suggest seeing a different accountant, as it was the accountant who was initially talking about CGT.

@Rumblebear does the UK personal allowance still stand even if he is getting a job in Australia? As far as I know he won't have any UK income (other than the potential rent), so that is interesting to know!

He would pay income tax on the rent not cgt . Cgt kicks in if it ceases to be his principle private residence for 3 years then he sells it, but even then it is staggered. There are all sorts of legal duties as a landlord, even if not charging rent. Plus ongoing costs and void periods.

He is thinking about giving his very very expensive asset to someone who is advising that he engage in illegal tax evasion (avoidance is legal) and overseas money laundering plus if everything went to plan would at some stage want to obtain a right to remain in Oz with no criminal record and sell his UK asset.

There are a whole lot of risks from the friend deciding to stay to being reported to the authorities by the same friend.

He is much better off have a tax specialist explain the costs involved in moving it from his home to a rental business asset (CGT and rental income rules applies) and his file and pay obligations. If he decided to become a landlord he needs to understand his obligations and what happens if he and oddfrend fall out.

@namechangeforme23 I think so yes - without going into too much detail, I went overseas and had rental income, but as a UK national I was still entitled to my personal allowance despite being a non UK tax resident for several years.

https://www.gov.uk/tax-uk-income-live-abroad/personal-allowance

I should also state though that he may need to consider Australian tax implications on his UK rental income. I didn't have to pay it, but I cannot remember if it was just totally exempt, or if I had to make a specific claim via my Australian tax return to exempt it (i am not familiar with Australian tax rules), or if it actually depended on my visa/residence status in Australia. I think far more people in Australia do tax returns though, in fact I think it may be a requirement, so he could prob get this sorted quite easily