I've bought the nanny a flat, am I mad?

[Owlie]

Ok, it's not quite as simple as that! But I wanted you to read this. I have just bought a flat very very close to our house. I know our beloved nanny would love to live out. Rents round us are high: £200 pw for a studio flat. If I let her live there, is it reasonable for me to ask her to take a cut in salary? To give you an idea of the sums involved: she works LONG hours (8 until 7.30 daily) and currently gets £400 a week. She does a lot of bbsitting for us too. (two girls, aged 3 and 6) The bills on the flat would add up to about £50 a week. What is reasonable for me to offer and for her to expect? There are tax implications too, I know, but my mind is too addled to tackle those today. ADVICE sought from wise women!

I think the question is did you ask her if she wanted to a flat?

She may be thinking to herself... i earn £400 / week save X amount so by my own place in 'this' time

Alternatively she may be thinking wow how kind i would LOVE my own space.

She would still be classed as a live in nanny I assume as you will still be providing accomodation...

I assume you are in or around London, in which case for such long hours i dont think much of a pay cut is reasonable tbh... however have a chat with her...

Maybe you could compromise on £375 and no pay rise for 18months / 2 years?

Obviosuly the flat is yours and not hers, and ultimatley it will be you who profits as its value goes up, and its another asset you your portfolio, not your nannies!

I think if you like her enormously and never want her to leave and if you can live without the rental income then you should throw it in as a perk but maybe agree something on pay rises or something. And watertight contracts etc, obv.

That's currently 11 hours a day = 55hours a week plus babysitting = 65 hours a week ish I assume. Which means £6.15 an hour ish - is that net? I think you could give her the option and make bills part of it but I don't think you should ask for a pay cut really. I think you CAN tie the flat to the job so if she leaves she does have to move out.

Those are all really useful comments, thank you, wise women.
She does want to live out, I know - but she's understandably not AT ALL crazy about a salary sacrifice.
Turns out the flat is a taxable benefit-in-kind, which slightly complicates matters. I guess I can't be the only one who finds the taxman factor the real killer...!

could you get roud it being a taxable beneift in kind by chargeing her a rediculously small amount of rent like £10 / week? or does the taxman have an answer for that one too?

Just a thought... I have no idea! btw!

what would the maths/tax be like if you paid her a live out salary (ie give her probably quite a substantial pay rise) and charge her rent? maybe that could be tweaked so that it basically amounts to the same for you as her continuiing live-in and you renting the flat to someone else whilst her still being better off than trying to rent elsewhere.

Id be interested to know btw as dh half seriously suggested this when it looked like we were going to loose our nanny

but dont forget if nanny becomes a live out nanny she will have to pay herself for:
Gas / elec / water / council tax / food / tv licence / land line and broad band / sky tv etc

(all things that are included in a live in nannies salary)

that mus all add up to more than a few £s!

Re Hatwoman's suggestion I think that the maths/tax thing would work out the same whether you increase her salary and charge her rent or keep her salary the same and don't charge rent, ie in both cases you would have to pay additional tax, either on the increase in her salary or on the taxable benefit in kind - should both be the same amount. Either way you will be out off pocket by the additional tax so maybe you should agree to reduce her salary by this amount - definitely doesn't seem right that you have to pay more for providing her with a flat! If you use a nanny payroll service I'm sure that they could do the calculations for you.

I am currently thinking of proposing that we charge a peppercorn rent of £50 or so which is important because apparently we need a shorthold tenancy agreement of some sort.

I think I might suggest a salary sacrifice of £60 pw, taking the salary down to £340. This would be on the understanding that she would then earn the £60 back in babysitting for us a couple of nights a week. I'm not quite sure how the taxman calculates the value of a benefit-in-kind, though, so I'm plucking a figure out of the air - assuming the value of the flat as b-i-k is £10,000 pa then the tax and NI is about £3,600 pa. Crikey. My head aches. I shall try Nannytax in the morning...Meanwhile, thanks for your help so far. And if anyone else has any thoughts, please o please chip in.

Have just re-read the op. She gets £400 live in?! That's a huge live in wage. I think you would be totaly justified giving her a pay cut. If she wants to live-out (and not use your studio) she would be faced with paying rent a lot higher than the £60 you're suggesting. Maybe you should make a list of the benefits this arangement would give her ie, lower rent than renting privately, closer to work than if she rented somewhere in a cheaper area, no travelling expenses.

I also think that the babysitting should still be included in her salary.

but she has long working hours...

Live-in hours are typically 12 hours per day.

I'm sorry, I seem to have stumbled into the earning obscene amounts of money part of MN.

I think you'd be best to check out the tax situation with the flat first before deciding on changes in pay as if she gets it at below market rent that might constitute a benefit in kind too.

i think its mad that people can live in a mansion with a flat as part of it and it doesnt count.... yet you can buy a flat next door and suddenly its a benefit in kind! (and may even be closer to your lived in area of the property then some peoples super huge mansions with nanny annexes at the otehr end of the estate etc!)

Being really naughty here but...

Who would know that the nanny lived out anyway ?

Oh right, mogs. Didn't know that, but then, that's what I get for nosing on threads regarding things I know nothing about

The tax man looks at the VALUE of the perk, not the peppercorn rent, and will tax accordingly.
I wouldn't ask her to take a paycut, and will you be escorting her home late at nights when she has finished her babysitting etc?

I had a flat in my old position it did not effect my salary, I was not expected to pay bills on the flat and my employers still continued to pay for all food.

I think you need to sit down with your nanny and discuss all that you have spoken about here.

I also think that although she earns 400/week it doesnt sound like an unreasonable amountfor the hours she is working, is she qualified and very experienced as that will also effect her perks and salary.

If you have a nanny who you love, you will I guess need to do whatever it takes.

Problems you have are fourfold:

1. You are already paying a very good salary for a live-in nanny - even if she is doing 65 hours per week - those are standard hours for a live-in, not long ones... see here, so there is little scope to move in any direction - dropping a wage just won't work because nannies who live out expert to earn MORE, for LESS hours (they have their living costs, commute time, costs of own car/transport and so on), and increasing the wage obviously doesn't make sense in your case.
2. You will get taxed on rental value, not rental charged. What you probably ought to do is to increase the live-out wage to the correct market level, and then charge market rate for the flat, bringing her 'net ' back down to same level. BUT you will really, really suffer for it tax-wise so that's a problem too
3. If she wants to live out then chances are she might take another job from somewhere else, anyway, so you may have little choice in what to do.
4. any tenancy agreement might give her rights to remain which can be complex should she stop working for you (especially if for example she has a baby of her own)

What you should do is work out the net income after costs of renting the flat out commercially (remember that mortgage interest is tax-deductible). Then look at costs to you of giving it to her (including taxman taking a chunk of rental value, utility bills and so on). Add these two together, divide by 52 and look at what comes up. That is the 'cost' to you of what you are thinking about. I think you might get a big shock. The numbers will depend on your circumstances but could be very large indeed. It might be better to suggest she finds her own place and increase her pay to the market standard for a live-out, financing these extra costs from the revenue you get by letting the flat out commercially.. two reasons why this might be a good idea: - you won't have to cover the bills of running the flat yourself so will save all of this, and once she is faced with the reality of costs of independant living she may decide to mave back in with you after all...

Everything will of course depend on your circumstances. If money is not the primary concern then you should go with your gut feeling as to how much you need/want to keep this particular nanny. Once you look at the extra costs of her moving into the flat, you might think it better to let her go and replace her if she is really keen on not being a live-in any more. Has to be your call in the end.

The cost to you is not the same as the value to your nanny, as other posters have intimated.

Why not offer your nanny two options:-

(i) Live in the flat with the reduction in pay (but agree to gross up her salary to take account of the tax implications of the benefit in kind) so that she is net net only £60 pw worse off. This will mean that you lose the rental income, you have an additional tax cost but you get a reduction in pay. It will cost you more not less btw.

(ii) Offer her an alternative of her normal payrise.

See what she wants to do.

This is very interesting. A small flat at the end of our road was up for sale and we toyed with the idea of buying it for exactly the same reasons (and also in case we needed to have, for example, an elderly parent where we could keep a closer eye on them.

One of the things that made us decide not to do it was that our then current (live out) nanny was quite happy in her own rented flat. We also knew that when that nanny moved on, any future nanny may already have somewhere settled to live (which is the case with our current nanny), in which case we would have had to have let out the flat to a third party and all the hassle that entails. That was without even thinking of the situation about security of tenure etc (DH and I are both lawyers and know enough about it to be scared but not enough to know what to do about it).

I also suspect both nannies have liked a bit of distance away from us at weekends etc.

The other thing that put us off was the cost of the small flat .

I guess you know and are prepared to cover the additional costs of benefit in kind (below copied from nannytax.co.uk):

Benefits in Kind
Benefits in kind are sometimes provided by the employer in addition to the employee's salary. They are often taxable benefits and must be reported annually as part of nanny's gross earnings.

Who pays the tax?
Benefits in kind offer a good example of why it is important for a family to agree a gross wage with their nanny. In almost all other types of employment the employee is always responsible for paying the tax on benefits. But as many nannies have net pay arrangements, it means that you, the employer, are responsible for paying this tax, which can potentially be a very expensive experience. Tax on benefits in kind is payable in arrears and is not reported until July following the end of the tax year. Sometimes it can take up to 2 years before payments are claimed by HMRC, and during the interim nanny can have moved from one job to another, leaving the new employer responsible for paying what can in some cases be a very large sum of money. If your nanny is on a gross wage, however, then the tax is deduced from her gross income at her current rate of tax.

In addition to tax there may also be a Class 1A NI charge of 12.8% of the value of the benefit to be paid - the employer always pays this charge.

Examples of taxable benefits

Car
Accommodation
Health Club Membership
Travel
Interest Free Loan
NB: Please note that this list is not exhaustive.

Mobile phones are not considered a taxable benefit

Use of Car
The use of a car is not considered a taxable benefit if your nanny only uses it during working hours, for instance to take the children to and from school or to after-school activities. If however nanny is permitted to take the car home and use it as a means to get to and from work, then it must be reported as a benefit in kind.

Accommodation
If accommodation is provided for the nanny and it has a separate front door and separate metering for gas, water and electricity, it is considered a taxable benefit and must be reported as such.

Please note that the information and examples contained on this page are to be used as guidelines only. If you have specific questions please contact Nannytax.

So the taxable benefit to the nanny would be in the region of 52 x £200 = £10,400. I don't know what the nanny's marginal rate of tax is, but let's suppose it is 22%. So that makes the tax cost to the nanny £2,288 or £44 per week. That's the amount I suggested you should gross up to compensate her.

Have never employed a nanny so have not thought about this previously but does the employment law exemption for nannies from the working time directive actually apply to nannies that live out?