Renting out my Daughters House

[OBE]

My daughter and her husband are buying a new house but can't sell their own so me and hubby have agreed to "buy" it and rent it out. The sale value is £140K and we've transferred the money to them so they can redeem their mortgage on it and buy their new one. We've pondered on the best way to move forward and instead of buying it properly, paying solicitors fees and Stamp Duty, we are thinking of leaving the property in their name for Inheritance Tax purposes but also getting a legal charge to cover our loan, should the marriage break down in the future etc

But can we then rent out a property that doesn't actually belong to us? What's the best way round it? Both daughter and son-in-law are HR taxpayers and me and hubby aren't - and anyway - it's our rental income so we don't wnat them to declare the rents

Grateful for any help and advice

[section 44]

You would need to be the beneficial owner of the property to be able to be regarded as letting it for tax purposes.

It depends on what you want to do, do you want to lend them money or buy their house (clearly different transactions).

it's our rental income so we don't wnat them to declare the rents

Only if you would be the beneficial owner of the property, not if you are lending them money.

[OBE]

Thanks Section 44. I guess we want to buy the house off them but not have to put it in our names as it'll pass back to my daughter anyway when I die. So for IHT purposes it seems a bit daft putting it in our name now, and costly for Stamp Duty too, if it then passes back to her anyway - if that makes sense

Can I only be the beneficial owner if I "buy" it properly - i.e. put it in my name etc with all the associated costs?

[section 44]

You appear to place too much weight on being the legal owner/registered proprietor.

For tax purposes (IHT, stamp duty land tax, direct tax on letting) this is generally determined by reference to beneficial ownership. In short, if you leave the property registered in your daughter's name but you pay her for the beneficial interest (equitable interest) then that would be subject to stamp duty land tax and would form part of your estate for inheritance tax purposes.

[OBE]

OK thanks - so do I have to pay full market value for the beneficial interest then? Could I pay £125K and £15K loan, keeping it under SDL limits?

And presumably, if I don't pay for the beneficial interest but treat the £140K as a loan, the beneficial owner is still her and so she'll have to declare the rents etc?

[section 44]

OK thanks - so do I have to pay full market value for the beneficial interest then? Could I pay £125K and £15K loan, keeping it under SDL limits?

Yes. Clearly, the loan would have to actually be a loan (i.e. you couldn't effectively give her the money but simply call it a loan).

And presumably, if I don't pay for the beneficial interest but treat the £140K as a loan, the beneficial owner is still her and so she'll have to declare the rents etc?

Yes

[OBE]

Sorry Section 44 - is the first yes to the question of me paying the full market value (£140K) or to to me paying £125K plus £15K loan to keep it under SDLT limits?

[section 44]

the latter

[OBE]

Magic - thanks Section 44

We only intend to keep the property rented for say 3 years when my daughter and son-in-law will sell it (if they can!). If it's in their name still, is the CGT on sale theirs or ours, as my hubby and I own beneficial interest?

Do we need a Solicitor really to get all this beneficial interest things sorted or can we do it informally?

[section 44]

The disposal for CGT purposes is the disposal of beneficial interest. Acquiring a beneficial interest doesn't have to be done by a solicitor, although it needs to be done properly to be effective.