Do I Pay Tax on Rent Received from Family?
I am considering renting out my inherited home that I currently live in alone to my brother and his family (wife and 2 kids) for 1-2 years, and subsequently rent a flat up in London for that time. If the 'rent' I charge my brother covers the mortgage and the normal running costs of the house, do I pay tax on that as income? There would be no profit as the agreed 'rent' is to cover the mortgage and pay for all required utilities, council tax and home insurance.
Arthur Weller Replies:
Interest on the mortgage is an allowable expense because it is always the responsibility of the landlord. If the rental agreement between yourself (the landlord) and your brother (the tenant) says clearly that the landlord is responsible for the home insurance, the council tax and the required utilities, then the rental payment covers these expenses, and they are all allowable expenses. They can therefore be deducted from the gross rental receipts in order to calculate the net rental receipt on which tax is calculated. If this net amount is nil, then there is no tax to pay. This can be seen in the HMRC Property Income Manual, at pages PIM2030, PIM2040 and PIM2076:
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