Renting Property To Family Below Market rates & Tax Positon

[msg2004]

Hello

Done some research but no clear answer.

Bought a one bedroom flat in London. Going rental rate 1,100 a month.

I intend to rent out to our daughter in a couple of months time when she sells/completes on her apartment sale.

We will charge here 200 quid a month. She will pay all of the bills and we will pay the service charge of/about 160 a month.

We also rent out a house.

I only work part time as well as my other half and will only need to pay 20% tax. If we rented out at 1100 a month, both me and my other half would move into the 40% bracket.

My question is, can I rent out less than market value at/about 200 for a max of a year and claim tax relief on the service charge which we will pay?

FYI, the property was bought with cash and the freeholders will be notified.
Thanks

[Dan_Manchester]

Evening,

Yes I don't see why not, as long as you aren't playing a tax game to reduce your liability on the other house you let I can't see the taxman having a problem with you offering your daughter cost price housing...

[TaxationPete]

Be aware that as you are renting to a family member at an under market rent then you can not utilise any revenue losses against your other property. As Dan says "as long as you aren't playing a tax game".
Regards Peter

[theartfullodger]

Should daughter fall on hard times & need benefits HB/lha people may view such a cheap tenancy as "contrived" & refuse payment: you could appeal & might well win.

I understand HMRC have powers to tax you on the basis of market not actual rent.

Cheers!

[King_Maker]

Should daughter fall on hard times & need benefits HB/lha people may view such a cheap tenancy as "contrived" & refuse payment: you could appeal & might well win.

I understand HMRC have powers to tax you on the basis of market not actual rent.

Cheers!

I am not aware that HMRC can substitute a market rent for income tax purposes. Do you have a link?

[Snorkerz]

'Perceived Income' is certainly a feature of DWPs thinking and I would be surprised if it didn't form a nice earner for HMRC.

[msg2004]

Hello

thank you all for contributing.

My understanding is:


Yes i can rent out to daughter at a much lower rent.
This will keep us outside the 40% tax bracket and in turn help our daughter lower rent.

About DWP benefits, our children have never claimed as yet and would not be entitlted to that as she will have many k's to her name when her apartment is sold - we are just help her bridge the gap between her selling her property chain free and buying one chain free and in the process save herself several k's in rent and we avoid the 40% tax bracket for a year or so.
thanks

[theartfullodger]

Best of luck to you all... your daughter is very blessed to have such considerate parents

[Claymore]

I have definitely read somewhere on tax pages about 'selling' below market value to a relative is not permitted. This can really come back and bite you - I think you can end up with a CGT charge or something.
I do rent out a couple of my properties below market value, but only by about a couple of hundred pounds per month. This is to keep good tenants in place and not have the hassles and expenses associated when replacing tenants.

[TaxationPete]

Selling is a different matter. If you sell to a relative below market value HMRC regard the disposal as being done at the OMV for any CGT calculation. Regards Peter