Do I have to charge rent?

[sa6raya]

We bought my parents' (rented) house some years ago, raising the funds for a "cash" sale by remortgaging our own home and we charged mum & dad a nominal rent that covered the small increase in repayments.

 

The mortgage was fully repaid at the end of last year and it seems unfair to carry on charging them. Both are now in their 80s and not in good health. Apart from state & small private pensions, they receive some financial help due to their disabilities, but nothing more.

 

Over the years the Inland Revenue would calculate the amount of tax due on the second property - having made deductions for interest paid to the bank and any repairs that we've undertaken.

 

But my questions are:

 

1. Do I have to charge a rent?

2. If not, will HM Revenue & Customs decide on a figure that seems fair & reasonable (well, as far as they're concerned!) and assume that will be the rent and tax us on that?

 

We do not intend to sell the property - our long term plan is for the house to be used by any of our four children to help them get on the property ladder.

[MrShed]

You dont have to charge rent at all if you dont want - I dont quite understand what tax you are paying though? The only tax that should be payable in this case(other than obviously council tax) is income tax on the rental income, and needless to say you do not pay this if you have no rental income!

[onlynameleft]

you need to be very careful as regards IHT liability as, without payment of a market rent, the house may well be classed as part of your parents' taxable estate on death even if you own it - the thinking being that you hold it on trust for their benefit thus their beneficial interest is taxable. tax planning advice is probably beyond the scope of most posters here (that's not meant to sound at all patronising) and if I was you I would get advice from a tax advisor.

[sa6raya]

Thanks to both of you who replied. Will take further advice.

 

Cheers.