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.

More nonsense. CGT is nullified by IHT.

I think you need to consider that if your Mum ends up needing care then the house you live in could potentially need to be sold to fund it. Care home fees are very high and they burn through their savings and house sale money quite quickly. I think you should get some legal advice on this part of it and then you may need to talk to your Mum and brother about the outcome.

The HMRC thing is they cross reference records and have a name match for your Mum. Nothing nefarious just checking through the system. As above you can prove she doesn't receive rent from it.

HMRC would look at OP and her husband's bank statements too if they wanted to check that. I mean if OP and husband work cash in hand jobs then I guess they could pay cash to OPs mum and avoid a paper trail.. but they'd then need some other income to live off that was on the books otherwise they'd end up in trouble for tax dodging themselves...it all seems quite unlikely unless OP and husband are career criminals

I would also include your marriage certficate to show the change of name.

It could also be because the house was sold with a sitting tenant (you) and it would look like she should be getting rent as you were paying it to the previous landlord and it was declared, but you were still living there and nothing was being declared.

Easy to prove what happened and this isnt at all illegal.

No she only gets state pension and AA (which only got awarded last year and she was very reluctant to claim that) I do all of her housework and anything she can’t manage herself and anything else she needs. She pays all her bills from her pension and AA and anything large or unexpected she pays for from her savings.

This is likely an automatic thing. HMRC is looking for landlords not declaring their income and one of the ways they look for landlords evading tax is identifying those with more than one property, especially if the council tax on additional properties is registered in someone else's name, therefore the fact that you guys pay the council tax suggests to them this is such an example.

But none of you have done anything wrong as you pay no rent, therefore all she'll have to do is explain the situation. It may feel alarming, but try not to worry.

We definitely aren’t 🤣 just honest people working for a living with a lovely mum. I’m more than happy to show our bank statements if that’s what is needed

Given your latest update that your mum doesn’t receive anything means tested, I suppose it would mean being aware things could change in the future if she needs to pay for care, either at home or in residential care.

Your mum's not claiming pension credit or charging you rent. So she is fine. You aren't claiming housing benefit, so you are fine.

This.
Your mum has done nothing wrong.
HMRC will think she’s charging you rent, they’re only interested in money.
You write a letter confirming you’ve never paid rent.
Your mother writes a letter saying she bought the house with inheritance from her late husband, doesn’t charge rent.
If she were to sell your house she’d have to declare it for Capital Gains Tax so she needs to keep all the paperwork from when she bought it.

OP you need to have a conversation with your mum about getting the house transferred into your name or your and your brother's names ASAP.

As others have said, if she needs care - and you don't know what's around the corner - that house is part of her estate and the government could make you sell it to fund her care.

When she dies, you will have to pay inheritance tax on the house. Depending on the value of the house, it could be a huge chunk of money that you may not be able to afford to pay without selling the house.

I know it's not easy having these conversations, but you are in a very vulnerable position here as your home could be taken from you should a worst case scenario situation happen. I've had friends experience this when their parents have had catastrophic strokes or other serious illnesses that have left them needing round the clock care, and suddenly that £250k house they thought they'd inherit was being sold to pay the fees and there was nothing left at the end.

Talk to your mum and see a solicitor. You can't bury your head in the sand when it comes to estate planning. Too many people do out of fear of seeming grabby or not wanting to discuss their parents' death, and then end up seeing all of their parents' hard-earned savings that they wanted to go to their children, instead go to HMRC.

While I stand by my last post, if your mum is still healthy and independent, if she gives you the house now, there is a chance it will not be taken into account if she needs to pay for care later, so you could keep it.

The test the local council will apply is whether she gifted you the house in order to dispose of her assets and avoid them being taken into account. If she gave you the house and was in care within six months then you would have little chance to argue that the two were not linked, but if it is another 10 years before she needs care then you should be okay.

This is worth looking at, as even inheritance tax only costs 40% of the value of assets, but selling the house to pay for care would cost 100% of the value and leave you homeless, as your mum's own house would also be sold.

It's a cruel system that encourages people to save for their entire lives, thinking they will leave a legacy for their children, and then takes it away when they are at their most vulnerable.

Take legal advice clearly. This also assumes your mum wants to give you the entire house outright, which might not be the case if she has other beneficiaries in her will.

Good luck.

This is very far fetched. Your mum confirming her daughter lives there rent free would be Sufficent.

Why would she owe any money? She's not charging any rent, which would be taxable income.

There may be some levies for owning a second home, but once you've explained the situation it should be fine. She's not making profit from it and you can provide bank statements to prove this. Xx

There’s no need for your mum to worry as she wouldn’t be in ‘trouble’ with HMRC unless she’d deliberately tried to deprive them of tax, all she has to do is send them any information they ask for, there’s no point sending things they haven’t asked for. If she hasn’t been charging any rent then she has nothing to worry about, she’s entitled to do with her property as she chooses.

What a lovely thing your mum has done for you. Hope all is ok with HMRC.

She absolutely should not have been doing that!
She has received a nudge letter by the sounds of it. A tenplate letter sent to many people in a particular category, in this case potential landlords, to nudge them into correcting their tax position, if appropriate.
Just write a brief letter confirming the facts. No need to send them bank statements. If they want further information, they will request it, but they will likely just close the file.

If it helps OP I am in your mum’s position in that I own a flat that my dd lives in rent free. I had previously rented it out but when the last tenants left my dd asked to move in. I got a letter from HMRC opening an investigation into my last tax return because the rental income had stopped but I had not sold the flat. We explained it all in a letter and it was completely fine.

She should consider self assessment for tax purposes even if she does not need to pay tax.

HMRC are querying why any rent has not been declared. How are they to know there is no income and there has been no change year in year.

No she should not

No it's not this at all.

I know now. OP followed up and I get it. Thanks

Your DMum probably should have completed a self assessment tax return each year as a landlord to show no income.
She needs to contact HMRC & ask if she needs to do this. The deadline for last year is 42 Jan 2025

HMRC may attempt to fine her for not doing this.

THMRC may ask for bank statements for the last 10 years.

Did your DM pay extra stamp duty when she bought the second property, because this may be due ?

If your DM sells the second property, she may be liable to pay capital gains tax

As a landlord, your DM has responsibilities including

Yearly gas safety certificates

Electricity safety certificates

Landlord insurance

Keep records of rent, tenancy documents, repairs etc

Recommend that DMum reads up on the other obligations

-'

Attendance allowance is not means tested

Being a landlord is a big responsibility

Interesting as certainly it used to be part of the data protection act that it wasn't possible to cross-reference data records from other sources, and I would have thought (hoped) that the updates of it would have kept that restriction. Of course in recent years the Government has been more inclined to push its toes into people's private affairs.

OP, if I was in your shoes I'd go see a solicitor and get them to respond, and shut this down pronto.