Hi, my client has taken out a (repayment) mortgage and purchased a house for his elderly father to live in, as the father was unable to obtain a mortgage himself. The father reimburses the whole of the mortgage payments made by the son.
I believe that the reimbursements are taxable on the son as property income, unless a declaration of trust is drawn up naming the father as holding the beneficial interest. (The father also contributed the deposit and made a lump sum payment towards the mortgage, these amounted to a third of the purchase price in total).
I would be very grateful to receive any comments as to whether my understanding is correct.
Replies (5)
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A Question of Rights
I think this comes down to the rights his father has over the house.
If he has no tenancy, and has signed a declaration for the mortgage company, as my mother had to, accepting the fact that he has no right to remain in a repossession situation, then all the payments made by the father are gifts.
If they have created a formal tenancy etc then it could be rental income.
Might you not have a mismatch of
interest paid & received, with the interest element of the payment taxable on son, but the mortgage interest paid not allowed as a corresponding deduction?
Yes
I was in a similar position in that my mother moved into our separate bungalow. The mortgage company required certainty that she realised no rights accrued to her through living there.
She made a monthly contribution to our budget and HMRC agreed that this was not a taxable situation. The contributions were effectively gifts out of disposable income so did not have IHT implications although the lump sum did count as a PET.
A tenancy agreement or rent book would imply rights to remain and taxable rental income.