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  • Rent-to-Rent

    Rent 2 Rent - I am having a "blonde moment"!

    Have read this thread and I am still a bit confused.
    Re the contract between owner and letting company/individual it seems that the general consensus here is to have a commercial lease agreement or a management contract which provides rental guarantees.
    Re contract between the letting company/individual you would have a normal AST.

    Issues I have with this set up are as follows:
    There have been comments in regards to what would be acceptable to lenders in terms of the lettings agreements and some have mentioned that it depends on what type of product or which lender it is. However having spoken to most lenders in this regard they have always replied that they would not accept any situation where there would be subletting involved. Also whilst you do have products specifically for HMO there are no products specifically for subletting. In which case the only real option available should be for a normal lettings management contract which would provide rental guarantees as otherwise the owner would be in breech of the mortgage contract.

    If this is the case then any surplus profits made must be classed as commission/fees for services rendered and subject to VAT. If VAT is applicable then you would need to then generate invoices as required by law. However I do not know anyone/company doing this that actually does charge VAT. I have seen on lettings agents websites which clearly state that there is no VAT payable. (unless of course turnover is below threshold)

    As the companies/individuals that do the rent2rent do not pay VAT they must be taking on the properties via a lease agreement. If this is the case are they telling the owners that they are risking having their mortgage recalled if the lender finds out or do they tell owners not to say anything to the lender?
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    A valid point and one we are currently thrashing out with HMRC. The Rent 2 Rent 'er is a hybrid - are we a tenant (we guarantee the rent, something regular agents do not) or or we a specialist HMO agent?

    HMRC have been making grumbling noises for some time that we should be charging VAT and went to a court of appeal some months ago.

    A general consensus is that, as the end user is residential and the is no VAT on residential tenancies, we should not be liable. If HMRC are successful, could they then push for VAT on all tenancies?

    Regards mortgage product, we target mostly ex long term student properties that have fallen into decline and usually have an HMO product in place.
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    (02-05-2014 12:08 AM)johnsmithcando Wrote:  Have read this thread and I am still a bit confused.
    Re the contract between owner and letting company/individual it seems that the general consensus here is to have a commercial lease agreement or a management contract which provides rental guarantees.
    Re contract between the letting company/individual you would have a normal AST.

    Issues I have with this set up are as follows:
    There have been comments in regards to what would be acceptable to lenders in terms of the lettings agreements and some have mentioned that it depends on what type of product or which lender it is. However having spoken to most lenders in this regard they have always replied that they would not accept any situation where there would be subletting involved. Also whilst you do have products specifically for HMO there are no products specifically for subletting. In which case the only real option available should be for a normal lettings management contract which would provide rental guarantees as otherwise the owner would be in breech of the mortgage contract.

    If this is the case then any surplus profits made must be classed as commission/fees for services rendered and subject to VAT. If VAT is applicable then you would need to then generate invoices as required by law. However I do not know anyone/company doing this that actually does charge VAT. I have seen on lettings agents websites which clearly state that there is no VAT payable. (unless of course turnover is below threshold)

    As the companies/individuals that do the rent2rent do not pay VAT they must be taking on the properties via a lease agreement. If this is the case are they telling the owners that they are risking having their mortgage recalled if the lender finds out or do they tell owners not to say anything to the lender?

    (02-05-2014 09:20 AM)multiletcashflowsystem Wrote:  A valid point and one we are currently thrashing out with HMRC. The Rent 2 Rent 'er is a hybrid - are we a tenant (we guarantee the rent, something regular agents do not) or or we a specialist HMO agent?

    HMRC have been making grumbling noises for some time that we should be charging VAT and went to a court of appeal some months ago.

    A general consensus is that, as the end user is residential and the is no VAT on residential tenancies, we should not be liable. If HMRC are successful, could they then push for VAT on all tenancies?

    Regards mortgage product, we target mostly ex long term student properties that have fallen into decline and usually have an HMO product in place.

    I think you will lose based on that argument because management is a vatable supply. What you are really doing is underwriting the rent is it not? Now this opens up another can of worms! Given that you are not a regulated insurer I fail to see how you can claim that any profit should be charged as IPT (Insurance Premium Tax) unless of course you are able to jump the regulatory hurdles. The other alternative might be to consider whether you could be deemed to be offering a rental warranty, however, I have yet to look into the VAT implications of that but my gut feeling is that that could prove to be favourable.

    Do you have a tax barrister working on this? If not I may be able to use my legal contacts to help you find a good one who operates on a Direct Public Access basis and is also familiar with property and contract law. By all means PM me if you would pursue this line of thought this in confidence.
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    Regards


    Mark Alexander - Property118.com
    Twitter: @iAmALandlord

    Any current news/advances on this topic?
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    I am also interested to hear about costs etc. John has given us an idea of propossed 60% (ish) rent if we are to include maintenance. But who pays the Council Tax, water rates, utilities and insurances. I would assume that is down to the Rent 2 Rent business to calculate in the cashflow. What are the potential banana skins?
    Paul
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    Welcome Paul! Smile

    The Head Tenant pays all those costs because you are offering an "all inclusive" room rate.

    You are proposing to put unrelated people into a house share, so you couldn't expect them to deal with the bills because they would all dispute how much they had used of what.

    LondonShared say that their houses do not break into profit for around a year, because of the costs involved in setting them up correctly.
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    Fantastic article by the team at Anthony Gold Solicitors:  How NOT to do Rent to Rent. 





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