Tax on income when no proof of rent

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    Tax on income when no proof of rent

    Hello, my brother bought our parents house from them as they had suffered some major financial problems and he didn't want to see them have to sell up and go into a council place. He agreed to buy their property (with a mortgage) and live there with them and they'd pay enough rent to cover his mortgage.

    This arrangement worked well until he met a girl and bought a 2nd property with her (with another mortgage) about 3 years ago. This is now his main residence.

    Our parents continue to live in his old house, he has gained permission from the lender to rent it out. They continue to pay rent (his mortgage) on that property (although it went down a year or so ago so he is using about £100 of what they pay him pcm as overpayments on that morgage now). They are paying council tax and all the bills there.

    So he is in a situation where he's paying off the mortgage on his rented property with their rent. They did have a tenancy agreement in place initially, but this hasn't been renewed each year.

    I wondered what the tax implications are for him with this arrangement? He's not declaring this rent as income as he says he's not profiting in any way. I'm concerned that he'll get a nasty tax shock someday. Both his mortgage lenders know about the arrangement.

    There may come a time when our parents retire and will need to claim HB in order to stay there. He's said he'll consult an accountant then and said that in the meantime, if queried by the tax man he'll say they're just repaying a loan to him each month, it's not rent. He's aware that he'll have to pay CGT on it when he finally sells it.

    What do you think? I need some facts to give him really. Thank you.

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