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Original poster

Renting property to a friend with no tax?

26 replies

WestminsterCrabby · 10/05/2022 08:03

Is this legal? It feels like it shouldn't be but I know someone who is renting out their flat to a mate and the mate just does a bank transfer each month. He says he doesn't pay tax as he has a mortgage.

Is this true? Not going to report or anything but feels wrong.

OP posts:
user1494050295 · 10/05/2022 08:10

It’s illegal. You have to declare earnings to HMRC. He may rent it out under the threshold but I can’t remember what this is.

Movingonup22 · 10/05/2022 08:13

Of course it’s illegal. Why would having a mortgage make a difference? I’m guessing it’s probably a residential mortgage and he’s in breach of the terms of that too…

he should be paying tax. But he’s very unlikely to be caught out I would imagine

Movingonup22 · 10/05/2022 08:13

I don’t think the lodger threshold applies because I think that’s only if it’s a room in the house you’re living in?

Iknowitisheresomewhere · 10/05/2022 08:16

Does the friend live there too? There is a ‘rent a room’ scheme where a certain amount of rent can be received tax free.

The mortgage but is a red herring - a proportion of interest paid can be deductible against rent but ‘it isn’t taxable because I have a mortgage’ is not an accurate summary of the rules!

Original poster
WestminsterCrabby · 10/05/2022 08:26

No he lives with his girlfriend hence renting the flat. Yeah I think residential mortgage as he lived there until recently.

OP posts:
FairyCakeWings · 10/05/2022 08:30

It’s not legal, but if it’s a private arrangement that they’re both happy with, I wouldn’t have any moral objection.

More important than the tax is that neither the tenant or the landlord will have any protection if there’s problems, but that’s what’s they’ve agreed to so leave them to it.

Original poster
WestminsterCrabby · 10/05/2022 09:52

Fair enough!

OP posts:
hazelbeach · 10/05/2022 11:01

FairyCakeWings · 10/05/2022 08:30

It’s not legal, but if it’s a private arrangement that they’re both happy with, I wouldn’t have any moral objection.

More important than the tax is that neither the tenant or the landlord will have any protection if there’s problems, but that’s what’s they’ve agreed to so leave them to it.

You don't have a moral objection to tax evasion by landlord, provided that the landlord is happy to evade tax? Do you really mean that?

PBJTime · 10/05/2022 11:04

It's illegal and tax evasion. Also it would void their insurance.

Gastonia · 10/05/2022 11:28

If he lived there until recently, it's a two-bedroom flat, and his friend is renting the spare room, perhaps he's not moved in with his girlfriend permanently. If it's a studio flat, say, then that would be different.

roarfeckingroarr · 10/05/2022 11:30

It's not legal but I have no problem with it. It's a private arrangement and so long as the owner isn't claiming benefits, why should the state take a cut of a private arrangement? We're taxed too much already.

Lemmingsarecool · 10/05/2022 11:40

It's classed as personal income, it should legally be declared even if no tax to pay. I rent out my commercial property to my business to cover it's mortgage and get taxed both ways. Sucks but it's the law. I doubt he'll get caught though and certainly wouldn't shop anyone for doing that. Tax is a joke in this country, was almost in tears sorting my return last night.

AlmostThereMaybe · 10/05/2022 13:16

He could be pretending to still be living there and charging no more than is allowed tax-free under the rent a room scheme.

catndogslife · 10/05/2022 13:16

The mortgage but is a red herring - a proportion of interest paid can be deductible against rent but ‘it isn’t taxable because I have a mortgage’ is not an accurate summary of the rules!
Private landlords no longer receive tax relief for their mortgage costs. So you are taxed on the whole amount of rent now and cannot deduct mortgage costs.

Viviennemary · 10/05/2022 13:20

They are tax dodgers. They still need to declare it in a tax return even if they think they don't make a profit.

BritInUS1 · 10/05/2022 13:30

They need to do a tax return as the mortgage is not a deductible expense against rental income

Original poster
WestminsterCrabby · 10/05/2022 13:57

Thank you for your replies. My gut was telling me it was wrong but I shan't be getting involved as it seems petty.

OP posts:
CherryRipe1 · 10/05/2022 14:03

If the l/l lives there, they can rent a room out under the government scheme tax free. I think the tax threshold is £7 or 8 k ish.

Chasingsquirrels · 10/05/2022 14:08

If the mortgage interest (not the capital element) is more than the rental income, and the landlord is a basic rate tax payer (and still would be after accounting for for the rental income) then there wouldn't be any tax to pay.
The rental income less allowable expenses would be taxed at 20% and a tax credit of 20% of the mortgage interest would be given against it.
The landlord should still complete a tax return though.

This is one of those that HMRC tend to catch up on down the line when the property is sold as they get land registry details. And at that point it is painful.

LadyDP · 10/05/2022 14:33

Well its illegal and I do have a problem with it. I have to pay the tax I owe so why shouldn't everybody else? It could be a problem if he falls out with his Tenant, Tenant gets into arrears, Tenant doesnt want to move out.....
Makes me wonder what else he has done illegally regarding setting up the Tenancy.
There may be trouble ahead.

CherryRipe1 · 10/05/2022 17:06

www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme
It's £7.5 k but home owner/resident landlord/lady needs to reside there.

Plantstrees · 10/05/2022 17:13

@Chasingsquirrels Your post is incorrect - For the last few years mortgage interest has not been classed as an allowable expense to set against residential letting income.

Chasingsquirrels · 10/05/2022 17:16

Plantstrees · 10/05/2022 17:13

@Chasingsquirrels Your post is incorrect - For the last few years mortgage interest has not been classed as an allowable expense to set against residential letting income.

It isn't an allowable expense to offset the rental income in calculating rental profit, but if you read my post properly you will see that isn't what I have written.
You now get a tax credit for the mortgage interest, at 20%. Therefore if you are a basic rate tax payer and the interest is at least equal to the rent then the tax credit would cover the tax.

FairyCakeWings · 10/05/2022 17:33

hazelbeach · 10/05/2022 11:01

You don't have a moral objection to tax evasion by landlord, provided that the landlord is happy to evade tax? Do you really mean that?

Show quote history

Yes I mean it. People are struggling right now and are getting pretty much fuck all back for the tax they pay so I don’t think it’s that big a deal. Same as I don’t really care about a cleaner doing a couple of jobs a week off the books or a tradesman doing a mates rates favour for friends and family off the books. If they’re paying tax on their main income then they are contributing. It’s healthy working age people that don’t contribute that should have something to be ashamed of.

I think if it were a long term arrangement then I might see it differently, but in a situation where someone has moved out of their flat to try out living with a partner, which might not work out meaning they need their home back at short notice, and where the tenant is happy to have no rights in exchange for cheap rent so there’s no exploitation happening, then I can’t really get worked up about it.

TizerorFizz · 10/05/2022 18:05

If landlord is still paying council tax there and on electoral role it won’t be found out. That’s like the rent a room scheme except the LL is in another property. If he doesn’t pay council tax and changes his address he’s not paying the tax he should on income and that stinks.