A good deed that might backfire?

[Heaton]

Hi
I'm wondering if anyone can advise me? I'm a property landlord and am fortunate enough to own a number of houses. I have one that has never really rented out too well. I also have a nephew who is desperate to get on the housing ladder, but needs to save to get a deposit. He works FT.

Since I feel property rich and my nephew is clearly property poor, I would like to let him occupy my rented house for a year rent free or at a peppercorn rent to allow him to save for a deposit, but I've been told that I can't do this as HMRC would expect me to rent it at full market value. Presumably they'd not believe I wasn't earning income from it, or perhaps it's about my nephew gaining some kind of unearned benefit??

Is there any way I can make this work out? Any advice would be much appreciated.

[RAL]

You can rent it at less than market value to your relatives. However, the allowable cost of that property will be restricted to the rent you charge. So you can not create a loss by charging some one less than market value.

If you have number of properties, then I think it is worth having an accountant to help you minimise tax and utilisation of various allowances.

[Heaton]

Thanks Ral for replying. Is it possible for you to explain this a bit more for me? I'm definitely not trying to gain anything by this arrangement, but don't want it to end up costing me big time. Are you saying that my allowable expenses on this property mustn't exceed the rent I obtain? Sorry for what probably seems a basic question.

[RAL]

Are you saying that my allowable expenses on this property mustn't exceed the rent I obtain? Sorry for what probably seems a basic question.

That is correct as you are not charging market rate rent. Hence allowable expense must not exceed the rent receivable. This is just anti-avoidance rules to stop people to create a loss by letting less than market value to friends and relative.

You do not have to apologise.

HTH

[Heaton]

Many thanks Ral.