Buy To Let Family Loan

[Mason1880]

Hi All

We have a property purchased from a family member. The deal was that we would pay the family member £600 a month for the property for 20 years until paid off.

This will mean we pay the family member £144k. However we have now rented the property out as we moved away and didn’t want to sell it.

The properties in the area sell for around £110k so the reason we paid more was that the extra £34k was to be interest, cheaper than the high street and we were happy with this.

The first 4 years we have paid off the interest, however now we are renting the property out in this year’s tax return how do I deal with this as the rental income was £9,000 but we paid £7,200 to the family member as interest on the deal.

Would this be treat the same as mortgage interest?

Thanks in advance.

[AdamS93]

No.

The whole £600 will not be interest, only a small proportion of it will be.

Remember, the 'interest' will be taxable income from the perspective of your family member.

If you were investigated, HMRC would probably disallow the lot as if you are effectively lending that sort of money and charging interest you need to be regulated by the FCA I believe so HMRC would argue that you are not paying any interest at all, and if you were you are in breach of FCA regulations.

[Mason1880]

The whole amount is interest as we agreed to pay this first before we started to pay off the property.

I would assume FSA regulations etc is something for the family member to be concerned over and not me as lender?