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Joshua
Joshua, Lawyer
Category: Law
Satisfied Customers: 25482
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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Hello. Family accommodation. Im purchasing a flat with

Customer Question

Hello.

Family accommodation.

I'm purchasing a flat with a view to renting it out. However, my daughter has suggested she (and partner) might live there for free, or a peppercorn rent. Over the past three years I have paid approx. £120k to train her as a commercial pilot (no job thus far).

She suggests repaying me for the training a monthly sum in lieu of rental. She would pay the money back eventually anyway. That way, I get a similar amount of money to that which a tenant would pay. I am concerned that this might be on the edge of legality. Your view would be appreciated. Thanks.
Submitted: 3 years ago.
Category: Law
Expert:  Joshua replied 3 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

May I ask if you have presumably evidence of the amount of loan you have made to her please?

Joshua :

Are you happy in principle with the proposal in view of the fact she is your daughter - in a strictly commercial arrangement of course you could demand rent and repayment of the loan?

Customer:

Hi.

Customer:

I have three years of bills with Flying College, CTC in Southampton. No formal loan, but I paid for the course in UK and NZ, travel, car and subsistence. She is happy to sign a tenancy agreement.

Joshua :

Thanks.

Joshua :

Will there be any mortgage on the flat?

Customer:

Cash for flat.

Joshua :

Thanks. If the flat belongs to you absolutely then you can do whatever you like in terms of letting someone stay there rent free or no subject to the terms of the lease. Do ask your solicitor to confirm there are no restrictions on subletting the flat - some flats do contain either prohibitions on subletting or a requirement that you pay an admin fee to the landlord to do so.

Joshua :

The only other issue is tax...

Joshua :

HMRC will expect you to pay income tax on any rent you receive. If you have to pay income tax - i.e. you have other income which already uses up your allowances which I assume will be the case then you need to consider having documentation to support why you should not pay tax on the money your daughter is paying you which on the face of it would look like rent.

Joshua :

Therefore it would be worth considering preparing a simple loan agreement setting out the total paid by you over the years as a loan and any interest rate payable by your daughter and you then keeping a simple spreadsheet as a record of what she has repaid over time. In addition, an tenancy agreement could be prepared showing the rent as £1 a month or something similarly trivial.

Joshua :

This way in the probably unlikely event of any HMRC enquiry you would have a clear documentation to show that any money that has been paid to you by your daughter represents loan repayments and not rent and hence showing why no tax is due by you on the same.

Customer:

No restrictions that I'm aware of, as it has been bought as a flat-to-let. Your HMRC advice gets to the 'nub' of my concern. Thanks. My income from various sources (including a limited company I own) takes me into the highest tax band.

Joshua :

In truth an enquiry is probably unlikely other than on the back of any other investigation but putting in place the above will serve as a solid defence to any claim you should be paying tax on the rent and so is worthwhile considering.

Joshua :

On the basis that the money is genuinely in repayment of a loan which from what you say it is no tax would be payable thereon.

Joshua :

Is there anything above I can clarify for you any further?

Customer:

Thanks Joshua. Valuable stuff. Enjoy Easter!

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