Buying to rent to family

[FluidDruid]

Anyone have any experience of this?

Seems like the best way to get one of my parents safely housed. They are currently in private rent with lots of stairs and this won't work forever.

What do I need to consider around tax/managing it etc? I haven't broached the subject yet and don't want to unless I'm sure I can make it work. I can save the 25% deposit but not sure about other implications like.capital gains, paying tax etc.

Well most standard BTL mortgage providers won't allow you to rent to family members, so you'll need a specialist product.

You'll need to factor in the additional SDLT (now 5% above prevailing). You won't be exempt from EPC rules, gas safety, electrical safety, licensing, etc just because they are family.

There is also potential issues around tax, because you can no longer claim a full deduction for mortgage interest. Instead you are given a credit at basic rate, so if you are higher rate (including your gross rents) then you will pay tax on money you've already paid to the bank.

It isn't something I would enter into lightly.

I've always had it in the back of my mind as a solution and now I'm looking into it I'm starting to think it could be difficult
I'm a high rate tax payer.
I would do the usual contract, all the proper checks etc, it was more I hadn't even thought about tax on rental income, capital gains etc - it was always more about could I get the mortgage in the first place and could I manage it if it took a while to sell after they die.

There's also the knock on that if I do this, if we wanted to move again, stamp duty would make that pretty much impossible.

I would suggest you look at other options before going down this route - any HA or council sheltered homes for example? Perhaps you could be guarantor on a suitable rental?

As pp has said there is a lot to consider before purchasing a BTL for family members, so be very sure you are prepared for those before proceeding.

How will they pay their rent? Is there not further stipulations if its housing benefit?

Would you be prepared for no income from them or to evict if issues?

They have decent pension and can afford rent. I'm not worried about inability to pay. It's more that it seems a lot more complicated and potentially costly for me.

Might need to go down housing association or council route as problem with private is they can always sell up and they're now in their mid 70s so one move would be enough to deal with.

You might be better off supporting them in a move to assisted living /over 55 complex - via rent - don't buy! Then you wouldn't have the faff of a mortgage, upkeep, trying to sell, tax implications etc etc.

Basically when my parents split they should have sold the family home. They didn't and in the divorce mum has the right to stay in the family home. He behaved badly so at the time I thought it was a bit mad but just stayed out of it. And now he's an old.man in unsuitable accommodation and I really really wish they had sorted it out at the time.

Look into HA retirement living for over 55's. It could be the answer to what you are looking for.

I don’t think you can legally rent a second property to family, if there is a mortgage

@Bubblebuttress you can, there is a specific buy to let mortgage for it

Thanks for the responses - it's helped me realise this is not a great idea. Will look into over 55s and start a conversation on that instead.

You can, but whether he would get housing support if his resources dwindled is subject to specific council rules to avoid a contrived tenancy. CGT would be due when you came to resell and income tax on the rent.

We've done it, but we don't charge any rent. It was a cheap enough property and we had enough equity in our house that we could extend our mortgage and lock in a 10 year fix, and pay both off within that term for the same monthly payment we were on. We see it as a long term savings plan and as long as we get back what we paid for it, we'll be happy. All the bills are in our names, and the family member sends us an amount per month to cover those. We did it to provide stability and certainty for all involved in an unexpected period of ill health.

Back when we where first renting and got housing benefit there was a clear clause that we could NOT rent from family (or friends) so if you require benefits its probably a no go.

I believe you only pay higher rate SDLT if you are buying an additional property so it would apply to this new property but if you were moving home (ie selling your PPR and buying a new PPR) then the additional SDLT wouldn’t apply.

Also I inherited a property where another family member of the deceased had been willed the right to live until their death and I cannot live there as they do and cannot legally charge them rent (not that I would want too) specifically as they are an elderly (over 60) and vulnerable (disabled and retired) family member so exempt.

However in any other circumstance (if they where younger, non disabled and/or not family), I would legally be expected to charge a person living in the house rent as part of my income/assets.

@Icanttakethisanymore ok that's interesting, will look at that.

I would need the rent to cover the mortgage. Pension is fine for life, he also gets PIP.

Wish this was possible as it would secure and he could have a pet but think the over 55s route is probably best.

We've done this for my Mum, but were able to pay cash for the house, which wasn't particularly expensive. We drew up a tenancy agreement at the beginning (nearly 20 years ago) but with a peppercorn rent. Mum is responsible for utilities, decoration and contents insurance, we pay for buildings insurance and any structural repairs. We also make sure it complies with all landlord safety requirements.

Mum is very elderly now and this arrangement has enabled her to have a comfortable retirement that probably wouldn't have been possible otherwise.

We don't expect to make much money on the sale when the time comes, but will pay any CGT if necessary.

Yeah - it’s a tough one. Investing in property is not necessarily a great option any more; you’ll pay higher rate CGT (currently 28% I believe) when you sell the property, assuming you are a higher rate tax payer in the year of disposal and the mortgage interest is no longer an expense, although you do get a 20% tax credit back which for most people has the effect of making you pay 20% tax on the rent which corresponds to the mortgage interest. However, because it’s not an expense, the whole ‘profit’ goes on your adjusted net income can impact you in terms of breaching the 100k threshold and tax free allowance taper, for example.

All that being said, I guess it doesn’t necessarily need to be a straight forward good investment if you’re also helping family out. However, It’s worth while doing a proper calculation vs what else you might do with the money that would be tied up in the property. At least that way you understand the financial impact for yourself before you start making plans.