Buying a holiday let

[slithytove]

I don't know if this is in the right section, but I need some advice please.

My parents do not live in the uk. They have retired outwith the uk and visit for a couple of months a year.

They want to buy a place for them to stay in when they visit. However, they wish to rent it out as a holiday place when they are not here so it washes it's face. They would only need to let it for 2/3 months to achieve this.

They do not want any ties to the uk property wise.

Can they put the property in their grandsons name? What are the implications? Will this affect him if he one day wants to buy a house? He is an infant.

Can any income from the property be put in his name in the same way? They want to start building up a fund for him and thought this would be a good way to do it - as I understand he will avoid income tax under £10k?

What are the tax rules on a holiday let? Do they have to be declared if under the threshold? What makes it classed as a holiday let?

Any and all advice would be very welcome.

Thanks in advance.

We have a holiday let and while I don't know about the infant owning property thing, there are very clear rules on the HMRC website concerning what counts as a holiday let and what doesn't. It has to do with the number of days it's let for, consecutively, it has to be genuinely available for letting, and not let out all year.

You can claim tax relief on expenditure but only in proportion to the days it's available for letting - not the days the family use it.

If it is far from you and an agency would do the cleaning, keys etc. you'll need to make sure all parties are clear on this. We find that family want to use it for free (fine) but also don't want to pay the cleaning charge (while the agency is running the equivalent of a hotel business and needs to go in and refresh the towels/tea/loo roll/fold the extra blankets before a let).
Also, don't think of it as your home. Don't fret if clients move stuff or use it for the wrong purpose.

Thanks for replying

Family wouldn't use it, it would just be a place for mum and dad to stay, near me, instead of staying at mine all the time. They would hope to let it in July and August mainly to cover the years council tax. I suppose in those months, they would arrange for agency cleaning.

Tax wise we would like to fly under any radars. So I'm guessing if we don't let it out a lot, we won't have to class it as a holiday let, and therefore as long as income is under the tax threshold, no laws would be broken?

Do you have a link to the Hmrc guidelines?

I think you have to do self assessment even if below the threshold.
No I don't have a link but GIYF.

This all sounds very complicated - could they not just rent something for the time they will be over here or do a timeshare?

Any property they own in UK (holiday let, BTL) they will have to do a self assessment, even if a loss is 'made'. Its not worth not reporting it to HMCE as if they find out about it, they'll not believe it doesnt make money and may assume rentals and profits.

Does them owning a property affect their status in UK and/or their new country of residence?

Buying the property in other peoples names is very complicated and you need an inheritance accountant/tax specialist for this. It is possible and it sounds like a sensible way forward - although then they wouldnt be able to stay in it for free.

They need specialist advice or this could go very wrong.

They wouldn't own it, they don't want to own anything here that is very important for their tax status as expats.

They also want to create a protected inheritance for GC.

I don't think they want to rent as they store a lot of stuff at mine right now including a car - they want to have a uk base while we (their kids) live here.

Why couldn't they stay in it for free if it was owned by GC? They certainly stay at my house for free enough!

I am happy to do a self assessment on property income on behalf of DS as the official owner if that's what's required. There would be no way it's over the income tax threshold.

And of course, if it ever was, he would pay the tax.

Not looking to break the law here, just how to safely manage a property legally.

I'm thinking they buy it and put it in trust for all current and future GC, with the trust maturing at some long ahead point in the future, or perhaps on their death.

That way it's protected for them, but also GC won't know about it as unruly teenagers for instance.

No idea if this is possible of course!

We own a holiday let (previous family home) which we use for weeks here and there.

It all has to go through hmrc, even at a loss. Self-assessment is something they will chase you up on.

I've no idea about it being in the name of an infant. I suspect that they'd be looking at special arrangements (?trust?) in that situation, but I'm not right up there on tax laws.

It's pretty hard to stay under the radar, though, as it would be advertised.

If you run it as a holiday let with the correct number of days available and the correct number actually let out - it may well make money. Otherwise it's not officially a holiday let and you can't claim back as much in the way of expenses.

But you will be very unlikely to make over the tax threshold for your DS.

They wouldn't claim back any expenses. If we can avoid it being an official holiday let, so much the better.

If HMRC ever find out about it, and take an interest you could end up in very very murky water. The fines they can impose are on top of repaying unpaid tax with interest, they can be up to several times the amount of unpaid tax.

If you let it out at all, you have no idea if any one it is let to is/will tell HMRC about it, never mind HMRC taking an interest from any adverts. Or even more likely the letting agency letting them know in their figures (and don't rely on HMRC not noticing - even with thousands of employees, they noticed a small discrepancy between my DH and an ex-employer).

What would be better is to pay for and get proper legal/financial advice from an accountant or a specialist property investment agent. I am sure there are ways they can invest in the UK without risking their ex-pat status - this sounds far too risky as you have described it.

If they don't claim any expenses, but still make income, they will still need to do SA. If they make no income at all - or even a loss - they'd still need to do SA.

It could count as a regular (non-holiday) let but you are even more likely to make more than the tax threshold that way because of not being able to claim as many expenses.

Nevertheless, you have to do it one way or the other on your SA form.

Forgive me mummy but I'm pretty sure I've made it clear in every single post that we wouldn't be avoiding tax, only trying to keep it under the income tax threshold. We would not want to put it in mine or my siblings name for this reason as we all already have an income.

Plus as said above, my parents want to start protecting inheritance for GC.

I presume it's not illegal for an infant to receive an income? I would do the self assessment forms for him as his guardian.

They only need to make about £5000 annually for the property to wash it's face, as I work out this is about 8 weeks rental. So probably not enough for it to be classed as a holiday let?

We would definitely have to take advice from an estate planner, I'm just hoping that this is at all feasible before I do that?

My parents cannot own property in the uk without it affecting their expat status and therefore the taxes they pay on their retirement income abroad. They really do need to keep it all separate. Their only legal ties to the uk now are citizenship, and I'm not even sure they will keep that.

But you might have less income on paper if it WAS a holiday let as you have better allowances for expenses.

Some flats will end up as holiday let one year and not another year, too.

You really need to read the HMRC website.

The problem is HMRC might well take the opinion that this wasn't a child having the income, but it being a way for you/your parents to avoid tax. That is why if it is possible I would definitely want to be able to tick the "have you used a tax advisor" box - imho HMRC can treat you more considerately if you have.

Also you seem a bit naive about the costs associated with a holiday rental and void periods.

Expats can and do/own property in the UK, but seem to be being targetted by capital gains tax see here, or here.
There is also talk of charging higher council tax, but that is only for empty properties, which this will not be (your parents and some rental people will use it).

However I would also be wary of leaving a property empty for long periods due to: squatters, breakins, and no one noticing little issues.

There are tax laws against giving an asset away (such as to the GC) and continuing to benefit from it (ie use it rent-free). HMRC can also challenge beneficial ownership rather than legal ownership, so really would tax specialist advice.

I have a holiday rental in Spain, I'm not naive to the costs. I just need to figure out how this would work in the uk and as a trust.

I'm probably not explaining myself well.

My parents want to buy somewhere they can stay instead of descending on me all the time.

They want to avoid the costs of council tax and bills if possible. Hence letting it for a couple of months.

Equally, they want to create some protected inheritance for GC, right now that is only DS but more will follow.

My parents cannot buy a property in the uk - they are up to their limit for maintaining their tax free status. (Not sure if I've termed that right). Capital gains tax would also be a huge issue due to the rest of their portfolio.

The property would be near me so it being empty would not be a huge concern - though my dad is only here a maximum of 2 months a year, my mum is here a lot more.

To anyone's knowledge, is it legal for a) a child / children to own a property in trust and b) a child to receive an income as part of that trust, paying tax if applicable?

If the property was purchased, my parents would not be connected to it personal at all, the money would come from a company overseas. I would be connected as DS's legal guardian I assume, but how could this affect me tax wise? As long as all the income was shown to be going into DS's name, I wouldn't have thought there were blurred lines?

Perhaps I should post in legal

I really need to reiterate, my parents don't want to cheat the system here.

All assessments would be done correctly. They just want to use some spare cash they have to a) benefit DGC and b) give them somewhere to stay in their lifetimes instead of always relying on me or having to fork out a lot for short term rentals.

They bought my siblings houses - they live in them so there is no income - but there is nothing illegal about putting a house in someone else's name to my knowledge?

Plenty of parents gift their kids with deposits, this is just on a bigger scale.

They can gift/buy houses in anyones name and yes those people can benefit from any profits if let out. All this is fine....BUT if they were to die within (I dont know how many years) then inheritance tax is payable on those gifts.

This is where a trust is a better idea. And you can nominate anyone to receive income from that trust, or just keep the money accumulating in the trust. BUT your parents cant then use the trusts property for free, or it looks like actually they still own it.

As I said it really is complicated and you need it set up properly.

Interesting that they can't use it! Because obviously they visit all of us - but all they did there was gift money outright.

So they couldn't visit a grandson living in a property gifted to him in trust?

And I am aware of the inheritance tax - I think barring anything dreadful we will be ok, they are mid fifties and in good health. They also have their estate set up slightly differently in that it is currently nothing to do with the uk.

Hence the need to not blur the lines by buying uk property.

The two they bought for my siblings are out of the 7 year limit already.

The point of them putting things into trust is that they are saying "its not ours anymore, dont tax us" . . . staying in it for free 2 months a year is them benefiting from it, so blurring the lines of who's it is and whether they have given it away. So they need to pay market rent to the trust.

Look on it as an opportunity for them to give the trust more inheritance free cash.

I also think they'd have to pay rent during the months they use it. Your own houses you benefit from while they stay (assuming you don't go away!), but this flat will not be earning income while they are in it.
There's no law against owning an investment property and never living in it but just waiting for it to appreciate, so I don't think the HMRC will be too bothered about under-occupancy, but if they stay rent free it would be them benefiting.

Yes but they could buy it in DS's name without it being in trust if they wanted as well. Just not fair to future GC that way.