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Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 16307
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I'm looking for some advice on tax issues & possible IHT

Customer Question

HiI'm looking for some advice on tax issues & possible IHT implications.My parents are elderly and renting, which is proving difficult in terms of rent amount/having to move regularly.I'm considering buying a second property (I'm aware of extra stamp duty and CGT). They will then live in my second home. Please note their wealth is well below the IHT limit.
If I charge them rent I assume I will have to pay tax on the amount they pay me? Alternatively they could gift me £3k a year and pay towards maintenance rather than rent? How can I structure this from a tax and IHT point of view please? if they are below IHT taxable limit can they just pay me a lump sum each year?Thanks
Susannah
Submitted: 13 days ago.
Category: Tax
Expert:  Sam replied 13 days ago.

Hi, Sam here , one of the UK tax Experts here on Just Answer, thank you for your question and I shall reply shortly

Expert:  Sam replied 13 days ago.

HI

They cannot be treated as gifting you money and it NOT be treated as rent - I'm sure you can appreciate this

So you will have to declare the rents (though thy are not required to pay it at all unless you want them to)

But then then cant gift you money instead HMRC will argue this

If they are below the IHT threshold and have no assets then there is nothing further to consider

But what you propose evades tax on your behalf not theirs for IHT purposes

Thanks

Sam

Customer: replied 13 days ago.
I get that and have no interest in evading tax, just interested in creating a structure that works. I.e. sensible tax structure.
So you are saying they can in theory gift me £3k a year and pay council tax etc and nothing more. That should not create issues. Correct?
If I charge them rent then I need to pay full tax on it, so need to calculate the amount they would need to pay me to ensure that it works. Yes? Again if I charge rent and the lender is fine with that then I can offset some property costs (from memory). Correct?
Those are my 2 options. Yes?
Customer: replied 13 days ago.
How am I creating IHT issues please if they are below the threshold please? Am I missing something?
Expert:  Sam replied 13 days ago.

Hi

then I am sure you can appreciate there is no tax structure that HMRC would accept

So no they cannot gift you £3000 and not pay rents - HMRC will override this and then come after you for tax interest and penalties

They can pay you full market rent pay council tax and utilities and then also gift you £3000 a year (which is tax free for them) but as they have no IHT position then the thresholds have no bearing on their estates (and you are making an issue out of potential IHT when there is none as you state their estates are well below their exempt thresholds)

Yes you will pay tax on the rents and can offset any repairs or maintenance but you are now then asking anew topical question re allowable expenses from rental income so I will answer this aspect fully on this occasion but note it really should have been listed as a new topic as per Just Answer policy (sorry) and you can have 20% tax relief on the interest paid to offset against tax due

Thanks

Sam

Customer: replied 13 days ago.
Got it. Thank you very much for your help. Susannah
Expert:  Sam replied 13 days ago.

Hi

You are very welcome

Good luck - its a good thing to do to help your parents out :)

Thanks

Sam