Second property tax implications

[Flatpackback]

I'm considering buying a second property for a DC to live in while they save for a deposit and increase their earnings to the point where they could get a mortgage. The plan is that they will repay me the stamp duty and legal costs on a monthly basis as "rent". I know that as this is income I will be liable to pay tax on it but how this works and at what rate etc I have no idea. I'm not even sure where to go for info - anyone out there who can point me in the right direction? No mortgage so no buy to let issues or repayments involved. The property will be in my name.

You would declare the rent on a tax return , same as any other income so it will either fall within your personal allowance, 20% or higher rate band . There are allowable deductions such as for maintenance. The second home is an issue for stamp duty payable on completion of the purchase.

LIZS thanks for your reply. I've never filled out a tax return I've always been on PAYE with no other income. Do I just ask the tax office for a form?

Yes register with them . Remember that you will pay tax in arrears so you need to set aside an amount to cover it as you go along, plus for any unexpected expenses.

It's not rent though is it, they're effectively repaying a loan from the sound of it?

Wouldn't have expected it to be income - you're not making money (unless the loan is accruing interest).

Put together a loan agreement for the total purchase cost that shows a monthly repayment of the loan principal and that the annual rent is £nil. You'd have to speak to a lawyer though since I think you need to file a declaration of trust if he's buying the property from you over time.

Don't forget that if you sell the property in the future you will have to pay capital gains tax on it as well since it is not your primary home.

It will be more tax efficient to put the property in his name, treat the amount you pay as a loan (a solicitor can sort it so your contribution is safe), should make stamp duty lower and no capital gains when you sell which could run to the thousands. Effectively you're acting as a bank providing a 100% mortgage to him and the paperwork/tax situation should be able to reflect this.

Thank you all for your help with this. As I suspected it's going to be more complicated than I thought. I don't really want to put the property in DCs name as I feel this would be unfair to the other DC. I was thinking of it as a 3-5 yr arrangement while they get themselves to a more financially secure position, then sell it and split the sale price between all DC fairly. If a significant amount will get eaten up in CGT I may need a rethink. Sounds like a need to speak to a solicitor before I go any further. Thank you again for your advice.