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bigduckontax, Accountant
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If my son and his partner come and live at home and they pay

Customer Question

If my son and his partner come and live at home and they pay me money to offset interest payments on a Lifetime Mortgage I have taken out to build an extension, living all together in the one house, will I have to pay income tax on their contributions?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I am Keith, one of the experts on Just Answer, and happy to help you with your question.

Effectively you are using the Rent a Room Scheme, which is not confined, despite its name, to just a room. Providing their annual contribution does not exceed GBP 4250 per annum the amount received by you is outside the scope of the UK income taxation regime.

Have a look here for details:

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

Remember that the number of people resident in a property has an effect on council tax. If you were a single occupant before you will loose your 25% discount and you must advise your local authority of the change.

I do hope that my answer has been of some assistance.

Customer: replied 2 years ago.

Thank you but I am aware of the rent a room tax scheme. There will be no rental agreement. My son and partner will each be contributing the interest on the Life time mortgage which is £19,000 pa between them. We will be living together as one family and the house is not being divided. My wife and I are joint owners.

Are you saying that I will be liable for income tax over the amount of £4250pa?

Expert:  bigduckontax replied 2 years ago.

The Citizens' Advice Bureau gives the following advice on the subject of such contributions:

'profits from renting part of a property, property letting including second homes and from furnished holiday lettings. Rental income from lodgers up to a certain limit is entitled to tax relief under the Rent a Room scheme.'

from which it would appear that the contribution to the running costs of the house would be taxable in your hands. Remember, though, that once they move in and start making contributions, two thirds of the loan interest element only would be allowable against that income. Furthermore the following expenditure is also tax dedcutible [2/3 again; source, Which, my edit in square brackets]:

'The most common types of expenses you can deduct are:

  • water rates, council tax, gas and electricity
  • maintenance and repairs to the property (but not improvements)
  • contents insurance
  • interest on a mortgage to buy the property [see above]
  • costs of services, including the wages of gardeners and cleaners (as part of the rental agreement)
  • letting agents' fees
  • legal fees for lets of a year or less, or for renewing a lease of less than 50 years
  • accountant’s fees
  • rents, ground rents and service charges
  • direct costs such as phone calls, stationery and advertising for new tenants

The expense should be incurred wholly and exclusively as a result of renting out your property'

I am so sorry to have to rain on your parade.
Expert:  bigduckontax replied 2 years ago.

I have found a little more from Advice Now which rather changes the complexion of the situation. Here it is, it is about a boy friend moving in, but the principle is the same:

'I think it depends on how you will be living together. If you are sharing the home as a couple, then he is simply sharing the bills that you jointly incur. If it isn't 'income' you don't have to pay income tax. Once he's moved in, it will be your boyfriend's responsibility to pay the household bills and the council tax, just as much as it is yours - so he won't be paying this to you, he'll be paying the council, the electricity company, etc. The fact that the bills are only in one name does not change this, nor is it a problem if you want to keep the home in your name only.

If, on the other hand, your boyfriend will be a lodger, then what he pays to you would be income. However, you could use the rent-a-room scheme which allows you to have up to £4,250 a year rental income from a lodger tax-free. If you did not use the scheme, what your boyfriend pays would be income from which you could deduct expenses arising from the letting, such as heat and light, after which there might not be much or any profit left to tax. If you are going to do this however, your mortgage agreement will almost certainly require you to get the lender's permission before taking in a lodger and the lender might, say, increase the interest rate charged as a result. Your buildings insurance would also need to be amended to take account of any letting. Consequently, this would not seem to be your best option.

If you want to go with the first option, I suggest you make a living together agreement when he moves in. This will clarify exactly what his position is, what you'll each contribute towards the household expenses, and how that contribution will be treated. It is always a good idea as it stops problems cropping up in the future and you can do it in an evening.'

Phew: it looks as though you can slip under the Income Tax wire on this one fortunately. It took a lot of digging to unearth that opinion!

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Keith,

Thank you again. I have just read your last email after I sent my last reply; sorry.

The "living together agreement" etc you have unearthed seems to fit the bill. We (my wife and I, and our son and his partner, who will shortly be getting married in any event) will all be living together as one family. My wife and I (as joint owners) will be getting a Lifetime Mortgage to pay for the house extension on the understanding that our son and partner will pay the annual interest payments. I know there are lots of things to consider re future possibilities but essentially I didn't know if I would be liable for income tax on the money my son and partner are intending to contribute (ie 100% of the annual interest). As you say, it appears there would be no income tax payable by me in the circumstances.

So unless you have any other comment in the next few minutes, thank you for your help.

Graham.

Expert:  bigduckontax replied 2 years ago.

Delighted to have been of assistance, Graham. I must say I was rather surprised at the stituation when I first researched it, I simply could not believe the position, but to wherever I turned the answer was the same, taxable. Finally, and with considerable difficulty, the solution materialised and the conundrum was resolved. Don't forget the Council Tax position, though.

Thank you for your support.

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