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Mortgage Advice Bureau (Holdings) Plc

Letting to a family member

If you’ve bought an investment property and are considering, or have already decided to let it to friends or family, it’s important to be aware that you’re still running a business. This means you need to have a contract and abide by the legal rules and regulations of letting a property, regardless of how closely related you are to the tenants.

You may be obliged to charge a certain level of rent

If you’re seeking a buy-to-let mortgage for your investment property, the lender is likely to require you to charge rent at 125% or higher than the monthly mortgage costs, so it may not be possible for you to give your friends or family a discount or let them live in the property for free.

Making sure the property is legally let

Under the Housing Health and Safety Rating System, all properties that are let privately must abide by 29 rules and regulations. This means they need to be warm, free from damp and leaks and the electrics and gas must be safe – the latter needing an annual gas safety check and a certificate issued by a Gas Safe professional. You also need an Energy Performance Certificate to highlight the property’s energy efficiency rating and see if further repairs or improvements to the property are necessary.

Knowing or being related to the tenants does not absolve you of your responsibilities as a landlord, so you cannot ask them to put up with problems in return for a reduced rent.

You will still be liable for tax

If you let the property to a family member or friend and they pay you any rent at all, this must be declared. If the rent is higher than the costs, you may need to pay tax on the excess income.

If the property is either a second home or another investment property and eventually sells for more than you paid for it, it is likely Capital Gains Tax will be owed at the current rate on the increase in value – minus any allowable costs and your personal tax-free allowance.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.