Zero rent tenancy agreement for an employee?

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    Zero rent tenancy agreement for an employee?

    Hello there Ladies & Gents,

    Just after a little informal advice before I take it up with my legal counsel next week.

    I'm prospecting a talented individual to join my business and if (or rather when) he accepts, he will need to relocate.

    I’ve explored the option of subsidising his relocation, but the poor chap has been out of work for the last year and has zero capital to play with. As I own a currently vacant property in the village where my business is located, I would like to offer him use of the house short term at zero rent, linked to his employment with me.

    I need some advice on what type of tenancy agreement to establish with him. As I personally own the property (it is not linked to my business) and because the request rent is zero, I’m hitting brick walls in my meagre attempts to research the matter.

    Any advice and guidance is appreciated.

    Many thanks
    - Stephen

    #2
    Messy & quote possibly likely to be viewed by HMRC as a "benefit in kind" that should be taxed/ conspiracy to avoid tax. How would you explain to HMRC your reasons for offering zero-rent tenancy when they suspect you are just trying to pay less tax/NI??? (both for employee's "salary" & tax on your rental income..)

    IMHO, better to up his salary & offer him a boring old conventional AST etc etc etc... Then you can..
    a) Fire him if work doesn;t work out.. - but he's OK as a tenant and/or
    b) Evict him if the tenancy doesn't work out..- but he's OK at work...

    Suspect any Judge faced with possession order case where some work-related issue was behind it would chuck your request out if zero-rent .. (yeah "zero-rent" eh/...: It's not "zero rent" is it, there's "money's worth" - which counts as rent - as you'd be paying him less than would be fair....)

    Deposit? So you fire him but he won't leave property?

    "Talented individual" and out of work for a year??? So why has nobody else wanted to employ this talented genius eh??: Minefield, or I'm a banana

    Baldrick & his "cunning plan" again??

    Just my view mind...

    Cheers!
    I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

    Comment


      #3
      much as I hate agents, this may be a case when renting to him through an agent would be best to keep your distance. There is nothing to stop you not requiring a deposit and paying reference and agency fees yourself if you wish!
      Unshackled by the chains of idle vanity, A modest manatee, that's me

      Comment


        #4
        Thank you, theartfullodger and islandgirl!

        Great points not considered thus far.

        What if it was to be a personal arrangement, i.e. leaving the business angle out of it? All risks aside, we have been good friends for years. Could the fact he is a zero rent tenant in my house and the fact he is employed by me be entirely separate?

        Obviously there would be a symbolic deposit to lend credence to the tenancy... whatever form it takes.

        What if I were to request rent of £250 a year, bringing it in line with a AST?

        Thanks again guys, your help is much appreciated.

        - Stephen

        Comment


          #5
          Did you mean rent od £250 per yr?
          AFAIK a tenancy with no rent or peppercorn rent cannot be an AST.
          Charge him the lower end of the market rent, offer 6 month fixed term to cover his probationary employment period, pay his re-location costs as part of his welcome package.
          Issue precautionary s21 with AST and fully protect any deposit received, within 30 days of receipt.
          What do you mean by symbolic deposit to lend credence to tenancy? A tenancy does not require a deposit, nor gaurantor, unless LL so wishes.

          Comment


            #6
            If the rent is very low the tenancy wouldn't be an AST, and if you do not charge any rent then it may not even be a tenancy but a licence. Either of which would be good for you (no minimum tenure period, no requirement to protect any deposit, and shorter notice on your part to evict) if you're happy to offer cheap/free accommodation.
            You would still need to fulfil obligations such as having a Gas Safety Report done annually.

            It may indeed be viewed as a taxable benefit by HMRC. This would have to be paid by your employee (AFAIK, but there may still be a NIC element) and still be cheaper for him than paying the rent.
            See: http://www.hmrc.gov.uk/payerti/exb/a...ommodation.htm

            It would be worth consulting a knowledgeable solicitor and your accountant to ensure that you get both aspects right.

            Comment


              #7
              I agree - do not under any circumstances link the house to the employment - you are making tons of trouble for yourself. Make it a proper AST, no deposit or guarantor, 6 month tenancy as Mariner suggests. Pay him the same amount as the rent on top of whatever salary you have negotiated and make the money go through his account and back into yours. As I suggest, perhaps even use an agent to distance his work from his home even further
              Unshackled by the chains of idle vanity, A modest manatee, that's me

              Comment


                #8
                Originally posted by islandgirl View Post
                I agree - do not under any circumstances link the house to the employment - you are making tons of trouble for yourself.
                What sort of problems?

                Comment


                  #9
                  - Employment tribunal issues (albeit Dave's changes to the rules mean there are very many fewer appeals that way..)
                  - Eviction issues if Judge decides that rent is the "money's worth" of lower salary etc etc & chucks out possession order...
                  - HMRC pursuing both parties over fraud...

                  Yes, outside london rent of £250 or less may not be (cannot be, it not allowed to be..) an AT therefore ditto AST..
                  http://www.legislation.gov.uk/ukpga/...-at-a-low-rent
                  However given "money's worth" tied accommodation as a "service tenant" it will be an AST when the Judge reviews it (IMHO..)
                  http://england.shelter.org.uk/get_ad...ervice_tenants
                  I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

                  Comment


                    #10
                    Originally posted by theartfullodger View Post
                    - Employment tribunal issues (albeit Dave's changes to the rules mean there are very many fewer appeals that way..)
                    - Eviction issues if Judge decides that rent is the "money's worth" of lower salary etc etc & chucks out possession order...
                    - HMRC pursuing both parties over fraud...
                    What is the basis for drawing such a black picture?
                    What could suggest any form of fraud?

                    Now, there may be pros and cons for each option, but it is certainly not black and white.

                    Comment


                      #11
                      If the use of the property is linked to the employment it will probably be a benefit in kind.
                      I don't really see how you could make it otherwise, without positively doing something to de-link it
                      (like making it very clear that the use of the property is for 12 months, a personal favour and whether or not you continue to work at XXXX.)

                      But that's possibly over-complex.
                      Get a solicitor to write up an agreement that you will allow the use of the property for nothing as a licence while he is employed by XXXX.
                      Because there's no rent or certainty of period, I don't see how it can "become" a lease, which gives you more rights if the employment doesn't work out.

                      It would be a taxable benefit for the individual, so he'd pay income tax at his marginal rate based on the market value of the rent.

                      Alternatively, why not just rent the property to him on a normal 6 month tenancy agreement, with no deposit and agree that the first X (say 3) months are rent free as a favour to a long standing friend.
                      Then, after a while, it doesn't matter if he works for you or not, he's just a normal rent paying tenant.
                      If he loses his job, he probably won't be able to pay you the rent anyway and have to move out/ be evicted by you.

                      That's a perfectly reasonable arrangement, from a property, HMRC and employment law point of view.
                      Last edited by jpkeates; 29-09-2014, 08:37 AM. Reason: Added a probably
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        I agree the OP needs to take professional advice as to what sort of tenancy he grants and on what terms and the tax position.

                        As to the tenancy, it needs to be borne in mind that (a) the employee needs some assurance about how long the property will be available to him and (b) the OP does not want a situation where the employee is occupying rent free when he ceases to be an employee.

                        Comment

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