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Original poster

Buying BTL for daughter to live in

35 replies

PurplePrickley · 05/07/2020 10:36

DH and I have been discussing doing this and on our end it seems like a great idea. We’d obviously charge her below market rate (just enough to cover mortgage payments). It would be an investment once DD moved out.
Am I missing some really obvious reasons why this would be a bad idea?

OP posts:
Pickpick101 · 05/07/2020 10:38

Would she want to live there ? What if she didn't want to move out ?

Original poster
PurplePrickley · 05/07/2020 10:42

She has asked us if we would consider doing it for her. When/if she moved out I guess we would rent to someone else?
I’m concerned about possible tax implications etc rather than family fall out.

OP posts:
popcorndiva · 05/07/2020 10:46

Would you need a mortgage? As that usually stipulates no family members as tenants. Otherwise from other threads it sometimes causes resentment if your DD wanted to change parts of the house but was not allowed as you didn't want to spend the money or didn't like her choice.

Original poster
PurplePrickley · 05/07/2020 11:06

Yes we would need a mortgage. I think we could get one but the terms are stricter. I.e. based on normal affordability criteria rather than rental income.

OP posts:
Original poster
PurplePrickley · 05/07/2020 11:07

And we would be happy to furnish/ decorate house to her tastes. We have a great relationship so I’m not at all concerned about resentment.

OP posts:
TinyPigeon · 05/07/2020 11:08

Does she claim benefits? Usually you can't claim housing benefit if you live in a house owned by family member.

TARSCOUT · 05/07/2020 11:15

You can't get a btl mortgage for a family member.

Toohardtofindaproperusername · 05/07/2020 11:17

Any family member...?

My0My · 05/07/2020 11:17

What we did was gift money to DD. She then had the flat in her name. Not ours. The minute you do buy to let it have a second home Capital Gains Tax might be payable. If you gift the deposit you can put it in her name.

DD at the time wasn’t earning enough to get a mortgage for the difference between our gift and the value of the flat, so we borrowed the difference (interest only) against our own house for 2 years. This is ending this month and she now has a mortgage in place (repayment) to continue. She paid us the money each month for the interest only payments. But it’s her flat so we didn’t rent it out to her.

Would this method work for you? Are you in a position to gift money and put the property in her name? Do you need the hassle of buy to let and possible CGT?

Thneedville · 05/07/2020 11:27

Not sure about the mortgage situation, but you would pay tax on the rental income. And you’d need landlord insurance because it’s not your home. And landlord insurance means you have to have a formal tenancy agreement. The mortgage would add more complexity still.

TARSCOUT · 05/07/2020 11:29

Actually just checked I am incorrect, rules have changed since I looked.

Original poster
PurplePrickley · 05/07/2020 11:32

@Thneedville

Not sure about the mortgage situation, but you would pay tax on the rental income. And you’d need landlord insurance because it’s not your home. And landlord insurance means you have to have a formal tenancy agreement. The mortgage would add more complexity still.
Would you pay tax on rental income if it was just covering your mortgage? I.e not making any profit?
OP posts:
TARSCOUT · 05/07/2020 11:33

Regulated buy to let is the name

Ballllzac · 05/07/2020 11:35

Yes, it changed over the last few years and now you wouldn’t get any deduction for your mortgage costs, nor for wear and tear. So you’d have to meet the costs of purchasing and furnishing upfront, and pay tax on all income from your DD, less any allowable expenses such as repairs. Being a (good, law abiding) LL is not an easy ride!

RedCatBlueCat · 05/07/2020 11:40

The interest on the mortgage used to be an allowable expense, so tax free. But the rules are changing, youd need to read up on the current rules.

NWnature · 05/07/2020 11:41

Not tax advice but you can only offset mortgage interest against rent so you’d need to consider whether you were doing a repayment or interest only. You also have higher stamp duty and CGT to pay on disposal for second properties as others have mentioned. You’ll have to do a tax return each year to declare the income even if you think the rental is offset by mortgage interest.

If you gifted her the deposit would she be able to secure a mortgage? Maybe looking at guarantor ones? More tax efficient in my opinion (for capital gains, income and inheritance tax purposes) however obviously you have to be comfortable with the fact it’s a gift so she would be the legal owner.

Alanna1 · 05/07/2020 11:42

There are financial products designed for parents to buy homes for their children, I believe - you might be better off looking at that. That way she covers her own mortgage but you are guaranteeing it. Imagine goggle and an IFA would help you identify what works best for you.

NWnature · 05/07/2020 11:43

Ah as @Ballllzac and @RedCatBlueCat say the rules are changing so definitely would suggest taking some advice on it before making a decision. You could ask an accountant or it could be worth considering an independent financial advisor to look at your overall position and how you might achieve your objectives.

Original poster
PurplePrickley · 05/07/2020 11:47

@NWnature

Not tax advice but you can only offset mortgage interest against rent so you’d need to consider whether you were doing a repayment or interest only. You also have higher stamp duty and CGT to pay on disposal for second properties as others have mentioned. You’ll have to do a tax return each year to declare the income even if you think the rental is offset by mortgage interest.

If you gifted her the deposit would she be able to secure a mortgage? Maybe looking at guarantor ones? More tax efficient in my opinion (for capital gains, income and inheritance tax purposes) however obviously you have to be comfortable with the fact it’s a gift so she would be the legal owner.

She earns approx 20K a year and is a single mum to 3 kids. She has no savings for a deposit and where we live on her earnings she would need a huge one. We aren’t really in a position to help her that way as much as we would love to. But DH is on paper a high earner so thought it better to get a second mortgage in our names and let her live in the property, paying enough rent to cover the mortgage. I can see from your comments it’s not that simple though.
OP posts:
popcorndiva · 05/07/2020 13:37

For regulated buy to let's they ask for a larger deposit say 30% as they consider you won't be asking the market rent. All your rent recieved will be taxed bar taking off 25% of mortgage interest and and fees for boiler certificate. It will cost you if you say she can only afford to cover the mortgage which will be on a higher interest rate for a regulated buy to let. Then yes if you do sell any profits will be subject to capital gains tax

My0My · 05/07/2020 16:19

Stamp duty doesn’t apply when you sell because it’s a buyers tax. You will have to pay SD if it’s above the threshold when you buy though. If it’s in her name, as a first time buyer, this could avoid her paying stamp duty if applicable.

Are you sure you have enough money between both your households to do this? With such a low income what rent can she afford? Would it actually cover the payments needed on a repayment mortgage? What if she doesn’t work for any reason. You will be stuck with the mortgage repayments.

You seem to all have earnings but no savings. Why is your DH a high earner “on paper”. Is he avoiding tax? Mortgages require a declaration of true income and that’s tax returns. So what exactly is the position. You won’t get a mortgage on an “income” where tax gas been avoided. It’s taxable income that counts.

Original poster
PurplePrickley · 05/07/2020 19:17

No tax hasn’t been avoided. I just mean although he is a high earner we don’t have the savings you might expect to be able to afford to buy a house outright for DD. Or to gift her a large deposit.

OP posts:
My0My · 05/07/2020 19:28

You don’t need to buy outright. You need a deposit and then a mortgage. But it’s easier to put it in her name. You need a deposit for BTL.

EinsteinaGogo · 05/07/2020 20:31

OP - it's definitely possible so don't rule it out, especially if it will help you DD and her family out.

Unfortunately the rules have changed, so there is extra stamp duty on buy to let properties, and you can no longer offset all of the mortgage interest.

Also the rent your DD would pay you is still considered income so there's tax to pay on that.

If you are the lower rate tax payer, you could consider putting the property in your name, so you only have to pay the lower amount though.

And you will need a good chunk of deposit.
If you have that, it's still doable.

Sillybilly6 · 05/07/2020 22:09

Have you checked you can get a mortgage with a low enough repayment schedule for your DD to afford it? A lot of mortgage companies want the mortgage to be paid off by the time a person is 70/75, so depending on your age it might mean a shorter term mortgage which will mean higher repayments than you might be expecting.