Living rent free in my mums house letter from HMRC

[DollyPumpkin]

Hi apologies for the long story, me and my husband have lived in our house for 15 years. We private rented for 5 years as my husband wasn’t able to get a mortgage after having a house repossessed when he divorced from his first wife a couple of years before he met me and we wouldn’t get a mortgage on my wage alone. After 5 years of living in our house our landlord served us notice as she wanted to sell the house. My mums husband had just died and left her a large inheritance and so she decided she wanted to buy our house outright and let us live there rent free which we have done for the last 10 years. Our previous landlord sold her the house at less than market value (£115k) as she wanted a quick sale and we had lived there and paid rent and been good tenants for 5 years.

My mum is an elderly lady, she’s in receipt of state pension and attendance allowance and owns her own home outright with savings (over 100k) She’s today received a letter from HMRC saying they are aware she has a second home which she rents out and asking loads of questions about when she bought it, how much it was and where she got the money from and how much rent she gets and she’s in a right panic about it. I haven’t seen the letter myself, I’m going to go round tomorrow and have a look.

Has she done anything wrong here? Is she likely to be fined or penalised?

Just to add, there is ground rent of £100 a year on the house which she pays and £400 a year service charges which we pay. We also meet the cost of any repairs needed and pay the council tax and all the utilities which are in our names. We don’t have a tenancy agreement or any legal agreement as we didn't think it was necessary as no money exchanges hands but she does pay for landlord insurance.

Don't ring HMRC write to them

She could show them her bank account statements if they ask for proof. As long as you're not claiming UC rent elements and she's not living in a way that doesn't reflect her declared income it should be fine. I don't know if something like you & DH signing a statutory declaration with JP to witness would bear any weight, might be worth doing. She can evidence the money has come from inheritance. You can't fully claim a negative, but they'd have to prove she is getting money from you. I expect you've considered this, but if you're mother ever needs to go into care she'll need to use her assets up before she's funded, so potentially selling both of her properties. I'd make sure you have savings in place to move out if necessary.

All I know is AA isn't means tested. So it won't affect that. Presuming if she owes money she must pay? But I'd hope they'd give her some kind of payment plan? Has she got a solicitor or tax advisor involved?

Ah yes I understand now. I would talk to HMRC to clarify

If it comes to it you can show HMRC both your bank statements which will not have a regular payment going between your accounts.

Of course, yes, thanks for the correction

Please calm, it's okay. Just explain it to HMRC.

Has someone's tipped them off - got any enemies?

I think you're OK now OP, but this could cause problems in the future. Eg: If your mum is forced to sell her homes to pay for care.

Or if she loses mental capacity and you or someone else is looking after her finances (with an LPA or deputyship), this rent-free set up breaks the rules. You'd have to start paying market rates.

It's worth acting now/getting advice to avoid this.

I can't see a problem here. Your mum doesn't claim anything means tested nor would she ever be likely to qualify for anything means tested whilst having 100k savings and owning a second property. You just need to explain the situation.

Could you start setting aside " rent " now so you can buy him out when the time comes?

I imagine you have extra money at the end of the day?

I would personally plan for that so you don't have to move.

Would you have been able to afford it at the price your mum paid? I feel she would have been wiser to have sold it or transferred ownership to you 10 years ago.

I don't think your mum has done anything wrong. However, it is a shame that she didn't give you the house 10 years ago. As it is, the house is still part of your mum's estate and so when she dies inheritance tax may be payable. Also, if she needs to go into a home in future, the house may need to be sold to pay for this before the state steps in to help.

It isn't helpful now, but for people still planning for the future, both of these could have been avoided if the house had been gifted outright a decade ago.

Fingers crossed the second scenario will never happen and your mum will live a long and happy life at home.

Thank you. It’s just scary isn’t it when something so official arrives out of the blue.

I don’t think so, not many people know about the set up outside of our small family unit and nobody was bothered about it when she bought the house. The only person it’s likely to impact if anything is my brother and he was very agreeable to it. I saw him over weekend and he was his normal self with me.

This is a good idea. Thank you for the suggestion. We do set aside money every month in our savings so have got a buffer if needed.

TBH I’m glad to hear that HMRC are looking into this (though obviously there’s nothing wrong) because I’m quite sure from anecdotal evidence, that landlords failing to declare rental income is rife.

Just one example, a dd heard from a doctor friend that 2 other doctors (married) in the same hospital were more or less boasting that they’d never declared their rental income.

Not at the time no unfortunately else we would have bought it ourselves

This. And for all HMRC know, op and her partner could be paying the mum in cash.

HMRC send these letters out to anyone who meets certain criteria. The list of people to whom the letter is sent is computer generated as is probably the letter. In this case it may have been anyone who owns a house which is occupied by someone else and not reporting rental income in a tax return.

Attendance allowance is not means tested and is not counted as income for income tax purposes.

As others have said, HMRC will just know she has two properties from land registry, and will know you live there from council tax records etc.

If you were my client, I’d suggest writing back explaining the situation and if you don’t share a surname I’d probably include birth certificates or some other evidence that you are related as mother and daughter as this is a reasonable arrangement. They shouldn’t question it any further than that.

Thank you. Will do that as we don’t share a surname.

Trying not to hijack your thread OP - My late mum owned a large piece of land as well as her house, she claimed AA but also Pension Credit without declaring that on her claim form and it does ask that question.

Whilst she wasn't getting any rental income from it, it was being used by family members for their business. The mess I've been left with to sort out since she died intestate nearly a year ago is a nightmare.

I'd definitely suggest getting some estate planning advice sooner rather than later x

Probably worth getting legal advice as there may be capital gains tax to pay when your mum dies as her second home (where you live) has never been her residence, so I think they will look at the value for probate and the increase in value since she bought it. You mention AA which isn’t means tested, but does she get anything means tested such as carers from the local authority or money to pay for care from the LA?

this rent-free set up breaks the rules

No it doesn’t. Gifts that continue in the pattern established by the giftor, before they were incapacitated can continue.

Technically she should probably have been doing a "private rental income" self assessment, putting £0.00 in the box and giving the facts in the other information field.

That would have stopped them bothering her.

You have done nothing wrong tax wise though, they just don't know the scenario, you just need to let them know.