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Kadett
19-02-2008, 09:00 AM
We are about to commit our recently purchased property (currently with Student Tenants arranged by ourselves) to our Son and 3 fellow Students.
It is our intention to put them all on to a single AST (12 Months) with a reduced new rent (compared with the current) of 75% less.

The 3 fellow students each paying a third of new rent value (25% of current). This new rent value being supplied, in writing, to each fellow student. My Son's rent will be zero.

The reason for this course of action is so we do not have to pay income tax on my Son's contribution, which we would pay as part of our assistance in helping to keep his Student Loan to a minimum.

We also accept that if one or more of his fellow Students 'dropped out', we with our 'Parent's hat' on, would have to jointly & equally fund any shortfall and pursue the monies from the absent fellow Student(s).

Does this course of action seem appropriate or have we missed something important - We would welcome comments from you all, thanks.

jeffrey
19-02-2008, 09:10 AM
Yes, but it might be preferrable to let the entirety to your son who would sublet to the others. He would thus be a resident L, so far as they are concerned, and evicting them would be much easier.

NB: that reply looks at L&T aspects. Tax aspects might however rule it out.

Bel
19-02-2008, 09:11 AM
We are about to commit our recently purchased property (currently with Student Tenants arranged by ourselves) to our Son and 3 fellow Students.
It is our intention to put them all on to a single AST (12 Months) with a reduced new rent (compared with the current) of 75% less.

The 3 fellow students each paying a third of new rent value (25% of current). This new rent value being supplied, in writing, to each fellow student. My Son's rent will be zero.

The reason for this course of action is so we do not have to pay income tax on my Son's contribution, which we would pay as part of our assistance in helping to keep his Student Loan to a minimum.

We also accept that if one or more of his fellow Students 'dropped out', we with our 'Parent's hat' on, would have to jointly & equally fund any shortfall and pursue the monies from the absent fellow Student(s).

Does this course of action seem appropriate or have we missed something important - We would welcome comments from you all, thanks.

Sorry; I am finding your post confusing. Perhaps I have not got it right,

but why would you reduce the rent on your property to 25% of what you used to get for it?



Also why would you have to 'fund' any shortfall if a friend drops out...seeing as you own the flat? To pay the mortgage?
As landlords, if the agreement is joint and several liability you can demand any and all of the tenants to pay the shortfall in rent.

You will have to put the total rent value on the agreement if it is a sharing agreement; then it will be obvious your son is not paying a share.

Perhaps you would be better to give them separate ASTs; but there will not be joint and several liability; which may not worry you anyway.

jeffrey
19-02-2008, 09:32 AM
Why would you reduce the rent on your property to 25% of what you used to get for it?
No, that's not what OP said. She wants to let to son + three others, charge HIM nothing, and charge each of the three 33.33% of total.

Grange
19-02-2008, 09:34 AM
but why would you reduce the rent on your property to 25% of what you used to get for it?

Do you mean 25% for each of three tenants = 75%; balance of 25% relates to son = 100%.

I don't think anybody could get too fussed with the tax on Jeffrey's plan. You let property to your son at 75% of market rent. He sublets it at 75% of market rent - so he makes no profit, so no tax. Tenant does a runner, you can waive the rent due from him.

Other tax thoughts. You will end up paying CGT on any profits if and when you sell. If you gift it to your son, then he has the benefit of PPR relief, so no CGT. Your other son (?) may not be so happy!

As you are letting the property for below market value to your son, you will be restricted on what expenses you can claim for tax. You are restricted to the amount of the rent. (e.g. interest costs £100 per month; rent £75, you cannot claim the excess interest costs against other rental income in future or other properties.)

I am concerned that if you rent 25% rent free then 25% of all expenses are restricted as they relate to the quarter of the property in which your son lives for free. If you rent whole property at 75% of market rent then your expenses are restricted to the total rent received.

[e.g. interest costs 75, total rent 75. Rent 100% to your son, total profit = nil so no tax. Rent 25% to your son rent free, then no deduction for that 25% = 18.75 of interest costs, but rent still 75, so tax payable on 18.75.]

What about using your son's personal allowances to save tax. Are you giving him money for university? Then why not give him income. Assuming your interest etc. cost is only 60, then charge him 60 rent; he collects 75 rent. He pays no tax on the 15 profit. Disposal of this right would be subject to IHT if you die within 7 years, but probably not material.

Suggest you have a word with your accountant if you go down this route.

Bel
19-02-2008, 19:07 PM
Jeffrey; I admit I may be a little pedantic here, like you sometimes are ;) bless you, but the OP does say that the new rent is 75% less; which is equivalent to 25% of the original value. See below.



It is our intention to put them all on to a single AST (12 Months) with a reduced new rent (compared with the current) of 75% less.


I think Granges interpretation is probably correct.

All Grange's tax stuff gives me a headache.

jeffrey
19-02-2008, 19:15 PM
Jeffrey; I admit I may be a little pedantic here, like you sometimes are ;) bless you, but the OP does say that the new rent is 75% less; which is equivalent to 25% of the original value. See below.



I think Granges interpretation is probably correct.

All Grange's tax stuff gives me a headache.

OR the OP might have meant that new rent is in fact 25% less than the old rent, to take account of the son's non-paying status, so each of the not-sons pays one-third of this reduced total [= one=quarter of old rent].

Give in yet?

Bel
19-02-2008, 19:29 PM
Give in yet?

I'm off to watch the footie; its that bad

pcwilkins
20-02-2008, 07:43 AM
We also accept that if one or more of his fellow Students 'dropped out', we with our 'Parent's hat' on, would have to jointly & equally fund any shortfall and pursue the monies from the absent fellow Student(s).

Why not leave your son off the AST; then he won't be jointly and severally liable for the rent.

Or else let the whole property to your son and allow him to sublet to the other three?

Peter

jeffrey
20-02-2008, 09:01 AM
Why not...let the whole property to your son and allow him to sublet to the other three?
Yes; see my post #2 which suggests just that.

Paul_f
20-02-2008, 09:20 AM
There are huge tax advantages in putting the property in the ownership of your son whilst he is a student as tax relief is available on any mortgage interest for instance.

You really need to speak with an accountants on this because buying it in the name of yourselves is not the best course of action I believe.

Grange
20-02-2008, 09:23 AM
student as tax relief is available on any mortgage interest for instance.

Eh?

Probably not. Son probably isn't a taxpayer, so no tax relief is available...

Equally parents get tax relief against their own interest.

Paul_f
20-02-2008, 09:26 AM
Sorry there's still distinct advantages in what I have said.

Grange
20-02-2008, 09:36 AM
Sorry there's still distinct advantages in what I have said.

Oh you mean like my advantages set out in post #5. But nothing like your post #11 which fell somewhere between unhelpful and downright misleading!:confused:

PS, it looks as though I must have half 'borrowed' a sentence or two from your disclaimer... I hope you don't mind.

Kadett
20-02-2008, 17:40 PM
Thanks jeffery, Bel, Grange, Pcwilkens and Paul f for your replies.

We appeared to have caused some confusion by errors creeping in.

The new monthly rent will be 75% of current (say £750 instead of £1000) not 75% less as we stated (haven't a clue why we typed "less"?)

Each fellow Student would pay say £250 a month (£750 total)

We have a Buy-To-Let Mortgage (specifically to let to Students) which stipulates it must be let on a single AST basis (so subletting option a no go) - jeffery Post 2

We would fund our Son's portion of any shortfall if a fellow Student dropped out (although we don't have to, we could let him pay!) - Bel post 3

Interest costs on Mortgage are just covered by the new 75% monthly rent, all other costs (Insurance, maintenance, replacements etc.) are not -Grange post 5

We are also aware of the reduced offset against tax for expenses (10% of the new Gross rental income which is now 75% less than before) - Grange post 5

Yes we will see an accountant about the financial aspects, what we are really seeking is the legal aspects of our Son on the AST as a rent-free Tenant (perhaps he could pay £1?) In all other respects he would be equal to his fellow Tenants, in so much as he would be equally responsible for all bills etc.

Again thanks for all your replies :)

Grange
21-02-2008, 07:50 AM
Are you in the habit of entering into legal contracts with your son?