Renting a property to a family member can seem like a simple solution, but there are several important factors to consider before making the decision. Whether you’re renting your home or a separate property, understanding the legal and financial implications is crucial.
In this guide, we’ll explore if you can rent to a family member, what you need to know about mortgages, taxes, and tenancy agreements.
Related: How to reduce tax liability?
Can you legally rent to family?
Renting a property to a family member is possible, but it comes with a few key legal and financial considerations. It’s important to ensure that the arrangement is formalised and compliant with the law, just like renting to any non-family tenant.
Here are a few regulations to follow:
- Tenancy agreement: Even when renting to a family member, it’s essential to have a formal written tenancy agreement. This document should clearly outline the rent, length of the tenancy, and both parties’ responsibilities, including maintenance and repairs.
- Fair rent: The rent you charge should be reasonable and in line with market rates for similar properties in your area. Charging too little could raise concerns with tax authorities, as it might be seen as an attempt to avoid taxes or make an informal gift.
- Tenancy rights: Renting to a family member doesn’t change their rights as a tenant. They will have the same rights as any other tenant, including protection from eviction under the Housing Act 1988. If you wish to evict a family member, you must follow the legal eviction process, which involves giving proper notice.
Do I need a buy-to-let mortgage when renting to a family member?
If you’re renting out a property to a family member, your mortgage type is important. If you have a residential mortgage, you may need permission from your lender to rent the property out. Renting to a family member without informing your lender could breach the terms of your mortgage agreement.
If you plan to rent out the property long-term, you may need to switch to a buy-to-let mortgage. However, renting to a family member with a buy-to-let mortgage can sometimes be more complicated.
Some lenders allow renting to family members on a buy-to-let mortgage, while others may restrict it. It’s best to speak to your lender and clarify the terms, see if renting to a family member is allowed. In some cases, your lender may require you to charge a market rent for the property.
Can I rent a room to a family member?
Renting a room to a family member is a bit different. If you’re renting out just a room, you may not need a buy-to-let mortgage, but you should still have a tenancy agreement in place. This agreement should specify how much rent is being charged and how long the arrangement will last.
Renting a room to a family member may also impact your council tax. You could lose any single person discount or other exemptions if you’re renting part of your property. Make sure to check with your local council to understand the potential changes to your council tax.
Additionally, if you’re renting out a room, you’ll need to make sure you’re complying with safety and health regulations, especially in shared living spaces.
Read our guide to letting and contact our letting experts for personalised advice.
Renting property to relatives
It’s legal to rent property to a relative, but there are tax implications to consider. If you’re receiving rent from a family member, you may be liable to pay tax on that rental income. Rental income is subject to income tax, and you need to declare it to HMRC if it exceeds the personal allowance threshold.
However, if you’re renting a room to a family member, you might qualify for the Rent a Room Scheme, which allows you to earn up to £7,500 per year tax-free. If the income exceeds this amount, you’ll need to report it and pay tax.
Related: Capital gains tax on buy-to-let: What you need to know
Family buy-to-let mortgage
If you’re considering a buy-to-let mortgage to rent to a family member, some lenders offer family buy-to-let mortgages. These mortgages are designed to allow renting to family members at a discounted rate. However, this isn’t the case for all lenders, so it’s important to check the specific terms of your mortgage agreement.
In some cases, a buy-to-let mortgage for family might offer more flexible repayment options or different interest rates. If you’re planning to rent to a family member, it’s essential to discuss your intentions with your lender to ensure you’re complying with your mortgage terms.
Related: What tax and fees come with a buy-to-let mortgage?
Looking for help?
Renting to a family member can be a great way to provide housing for your loved ones, but it’s important to ensure all the legal and financial aspects are covered. Whether you’re renting a room, an entire property, or looking into buy-to-let mortgages for family members, understanding your obligations and the rules is essential.
If you need guidance on renting to a family member or help with buy-to-let mortgages, reach out to your local Whitegates branch for support.
