Can I let my property to family?
Getting on the property ladder can be difficult, especially in a world fraught with difficulty right now thanks to the cost-of-living crisis.
With interest rates at 4.5 per cent as of May 2023, taking out a mortgage for first-time buyers especially can be pretty difficult.
Which, probably explains why as of 2021 there were 4.6 million privately rented homes in England alone.
Many people like the idea of buying homes and renting them out to children or other family members.
While this might seem pretty fool proof on the surface, issues around rent and liability may see relationships sour, so it is important to get legal advice and follow proper procedures before doing so.
You should still have a tenancy agreement
It might not be a conversation you want to have, but family and friends argue and fall out the same as anyone.
With that in mind, you should make sure you have an official rental agreement. Having it in writing means that if things go awry there can be no discrepancy over what was agreed.
Without written agreement, then eviction becomes tricky and expensive, not to mention the stress involved.
Having a tenancy agreement is of particular importance if the tenant has other people who will be living in the property, as everything needs to be put in the agreement.
You will still be liable for tax
Letting out a property to family or friends may seem a good idea, but be wary of tax rules.
If you receive any rent at all then you have to declare this for tax reasons, and if the money earned is higher than your costs then tax may need to be paid on the excess income you make.
Additionally, if the property is a second home or another investment property that eventually sells for more than you paid for it, then Capital Gains Tax is likely going to be required at the rate on the increase in value.
If you have doubts about any of these issues, it is advisable to hire a property agency that can look after your properties and tenants.
Rent levels may have to be a certain amount
You may be purchasing a property to rent to family or friends with the idea of providing a discount or letting them live there for free.
But be wary of the rules. If you take out a buy-to-let mortgage for your property, then the lender will likely need you to charge rent prices at 125 per cent or higher of the monthly mortgage costs, so that planned discount may not be viable.
Update your will
It’s not a particularly nice thing to have to think about, of course, but you should consider what would happen to your relatives if you passed away.
Namely, would they still be able to rent the property, or would it have to be sold? it is definitely advisable to update your will to protect against such eventualities.
