Have Tax Questions? Ask a Tax Expert for Answers ASAP
There is information on gifts out of income here.
A gift out of income would normally be made without any condition. I'm afraid that HMRC would almost certainly see your plan as a potential tax avoidance scheme if they got wind of it. However, given that you would be offsetting the interest on that part of the remortgage used to buy the property against that "rent" for tax purposes, you would probably have no tax to pay, especially if there were other expenses you met as the landlord. If the "rent" paid by your parents will be less than what you would charge commercially, any loss you made (rental income less deductible expenses) would only be deductible from rental profits made from letting the same property to your parents. That is of relevance to those who let more than one property, not you and your wife, right now at least. Take a look here for more information on property let on less than commercial terms. Give that I don't see much of an income tax problem, though I don't have any figures, I'd be inclined to not use the gift out of income idea.
I hope this helps but let me know if you have any further questions.
I'll get back to you on this, this morning.
You are free to ask as many questions until you are happy you understand your tax position.
Only the interest element of the £1,200 per month mortgage payment would be interest as opposed to capital. An "uncommercial" let is simply one where the rent charged is below the market rate. You can still make a profit but the use of any loss is restricted as I descibed earlier. A profit on an "uncommercial" let is taxable. You can deduct expenses up to the level of the rent that you charge your parents so you have a no profit, no loss situation.
Take a look here for the types of expenses you can claim. Clearly, if your parents met some of those or reimbursed you, there would be a wash for those expenses.
I think you have git it now. It is taxable income but you can offset expenses such as mortgage interest, ground rent, service charges and repair and maintenance expenses. The lender's annual mortgage statement will tell you how much of the previous year's repayments was interest.
If it were me, I'd complete a tax return but as you say, there are mixed opinions.
Thanks and good luck.