How to formalise tenancy arrangement with a family member?

[Harriet]

Hello,

My adult son is moving to an area where we own one of our investment properties. We will be renting the property to him from early next year.

Need advice, please, on how to formalise this arrangement in a way that will satisfy the tax man - i.e. that still allows us to claim interest and other deductions against our incomes.

Will we still need to use a managing agent? Or is there some other DIY, downloadable lease we could use?

Thanks in advance,

H.

 

[Harriet]

Hello,


Will we still need to use a managing agent? Or is there some other DIY, downloadable lease we could use?

Hi again,

I found a downloadable lease - so that's fine . . .

But do you think we need to use a property manager? Or would a signed lease be enough, accompanied by proof that he is paying market-value-rent (which he will)?

Ta.

 

[Jamie M]

A signed lease and regular rental payments to your account should suffice. That's what those self managing do.

I assume it would need to be rented at market rates too.

Cheers

Jamie

 

[Terry_w]

make sure he pays the rent, and on time too - otherwise it won't be a commercial transaction.

 

[Ed Barton]

A signed lease and regular rental payments to your account should suffice. That's what those self managing do.

Can be cash. Just make sure it's documented.

I assume it would need to be rented at market rates too.

There was a Noel Whittaker column where he said leasing to relatives could be slightly below market and still get full deductions, in exchange for no PM and perhaps minor maintenance being performed by relative. Sounded a bit dodgy to me and Noel is not an accountant (to my knowledge). Perhaps my memory is faulty and it was rent at the lowest end of market range is ok.

No two properties are the same, and no two applicants are the same, so 'market rent' is a range.

 

[pinkboy]

Get 1 or 2 agents to formally appraise the property. Charge your son the lowest of the range given. That way, it will still be deemed an acceptable 'market rate' than an agent would rent it for.


pinkboy

 

[Paul@PFI]

From a tax perspective I agree with all the above. Also make sure HE pays the elec and all arrangements are arms length. Certainly err to the lower side of market rent and some basis to support that view is best retained. Regular rent review too...Not too often. Make sure you have proof of rents being received / paid and the timing is normal. I would avoid cash. Cash spells trouble. EFT is better as it shows regularity and cant be disputed. No agent needed - Many IP owners don't use agents.

 

[bbmick]

I have just gone through all this in the last month with our latest IP and our son.

The advise above is on the money, but just to be sure - if you do not charge something close to market rates, then you could find yourself in trouble claiming interest & other deductions. Be very careful.

I chose to use Rentmaster software to keep track of payments and have asked payments to be made into our bank account so easily traceable. Rentmaster can print various statements that you can print/email etc to them so they can keep track of their commitments - helps me too. I feel the cost of software is minimal for what it does.

Good Luck