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So my question relates to getting a mortgage for a property in both my own and my father's name, with the intention of reducing my tax liability.
To give some background, I have offered to pay the deposit on a house for my father, and for him to pay the mortgage. It would be less than the rent he currently pays and a far nicer place to spend his retirement. I would not make any money from the arrangement, aside from building equity long term.
I originally thought a mortgage in my own name would be the only way forward - I am in my 30s and my father is too old to get a mortgage in his name alone.
My question is, to avoid his monthly payments going through as 'rent' to then be paid to the bank for the mortgage repayments, could he be co-owner and therefore living in his own house and paying his own mortgage?
I understand that having the house 100% in my own name would mean I need pay tax on all rental income - essentially I would like to know if there is a legal way around this.
Just to complicate things, I am an expat/non-resident. My father is a UK resident.
I have previously been in touch with a broker, and my income and status would normally be fine for a non-resident UK mortgage.
There might be another solution which I haven't thought of yet, so any advice would be well received.
Thanks in advance,
What figures for a house purchase , Deposit amount and mortgage repayments are we talking about here? Also, how old is your father ? What is his income and where will it come from to sustain the mortgage payments you mention ?
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You have a complex and intriguing question. I have been thinking about how to articulate the answer. So ignoring his potential ownership first;
It sounds like your plan is that he pays rent but at a discounted rate, that will mean that your costs are similarly discounted (ie restricted) for tax purposes. You won’t be able to turn this into a tax loss - breakeven is as good as you can do although with the new rules re interest that’s probably not an issue.
The issue I have is whether your father has an equitable claim on the property by virtue of living there and paying the mortgage. You could be deemed to be holding the property on trust for him as it’s beneficially his property. That means it’s within his IHT estate but no income tax as you cannot pay yourself rent. It will all depend on the facts but your only points concern legal title and paying the deposit, therefore I would suggest if you didn’t want this to be the case that you document the arrangement properly,
So so now to your question. Will there be no rent if you father owns a share of the property. Well in line with the above, one is taxed based on beneficial interests. You will have paid 100% of the deposit so, contrary to the point above, have an equitable claim on 100% of the property. HMRC could therefore decide to tax you on the rent. Equally you father could be deemed as he pays the mortgage and lives there to be the beneficial owner. It’s a grey area which will be ultimately determined in court based on the facts - paperwork wou”d help to clarify. However the tax would follow the beneficial ownership and the rent, interest and other costs apportioned accordingly between the owners. Your father would not be taxed on his share of the rental profits, you would.
the risk is really whether you have given your father the deposit or you’ve bought a property to allow him to live if he pays you a small amount of rent. The rules of equity are trying to read through the context of documentation to see what is the fair position based on the facts,
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Many thanks for your detailed answer. You have confirmed my suspicion that it is somewhat of a grey area, and I could potentially be opening a can of worms in the form of problems down the line.
Breaking even is all I hoped for. I don't have any other property (in the UK) to take advantage of a loss. Please could you explain how I might break even? Even if the 'rent' is well below market rates, I don't see how I could make enough deductions to get to zero tax.
Thanks for your comment - I will message you directly with the details.
When I worked overseas some years ago we had an employee who had a game of cards with his father and lost the house to his son as a gambling debt. More correctly in an early hand he lost the house to a colleague who subsequently lost the house to his son. I never heard the outcome but I often wondered how this faired as you are free to bet whatever you own and lose!
Could it have worked?
I wouldn't think so as he had lost and not passed it on. If had gone to Ladbrooks it would have been a loss. I assume