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Providing accommodation

To me or a family member in need.

Didn't find your answer?

Evening all,

As I'm sure it has been for most, the last year for the SouthCoastAcc family has been pretty tricky, in short my father lost his job and seriously needs a helping hand.

I have a company with a vacant house that he could stay in, there’s no mortgage so that’s one headache avoided.

He wouldn’t be able to afford to pay rent but I was thinking the company could provide the house to me and I could reimburse the BIK charge which seems to be about 2/3 of the market rate of rent.

I estimate it as…

Market value of house = £300,000

BIK = (300,000-75,000)*IR  + GRV

BIK = £6,850

I’m estimating the interest rate at 2.6% and the gross ratable value of £1,000.

The property was purchased using refunds released from my home, if I were able to reclaim the interest on my tax return it would all level itself out.

I’m sure I’ve missed something but any pointers would be very appreciated, it’s been a long and tough weekend and my head hurts.

 

Replies (28)

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By Tax Dragon
17th Jan 2021 20:09

Are you saying you borrowed to lend to the company, have not so far had relief for the interest you pay on your borrowing, but think you will if your father moves into the property it bought? If not that, what are you saying?

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Replying to Tax Dragon:
Slim
By Slim
17th Jan 2021 20:36

wrong thread

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Replying to Slim:
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By Tax Dragon
18th Jan 2021 05:48

Me or you? If you meant me, it's because, when I read "if I were able to reclaim the interest on my tax return it would all level itself out", I wondered "what interest?" - and rather than presume, I asked the OP what s/he meant.

In the absence of a reply, I still don't know. Can you interpret the question?

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Replying to Tax Dragon:
boat
By SouthCoastAcc
18th Jan 2021 11:27

I only bought the house a few months ago and it was unmortgageable at the time, the idea was to refurb and sell or let.

Yes I have lend the company the purchase price plus the cost of refurbishment.

If the house was provided to me and I paid the BIK then I'd have thought the interest would be deductable.

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Replying to SouthCoastAcc:
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By Paul Crowley
18th Jan 2021 11:30

Loan to a close trading company should be allowable

But there are caveats

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Replying to SouthCoastAcc:
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By Tax Dragon
18th Jan 2021 11:37

What interest?

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Replying to Tax Dragon:
Psycho
By Wilson Philips
18th Jan 2021 13:27

Just a guess, but I'm reading it that he thinks that if he pays the company the BIK equivalent (to avoid the actual BIK) this would be tantamount to paying interest. Which of course it is not.

But perhaps it's something else.

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Replying to Wilson Philips:
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By Tax Dragon
18th Jan 2021 14:06

What you are doing there is not "reading". The OP has not written anything like that, that I can see.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
18th Jan 2021 14:36

"reading" = "inferring", "interpreting" ...

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By zebaa
17th Jan 2021 23:14

You might want to look into your father's state benefit position. It will be complex - & your father will have to agree - but to help him you must have the full facts. You also need be be very aware of any risk to you and your family, if you have one, when you borrow money using your house. What if something happens to you ?

You might also want to consider a short term offer of assistance, rather than something without time limit. The desire, or perhaps even a felling you need to help, can lead to a quagmire. Best wishes.

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Replying to zebaa:
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By SouthCoastAcc
18th Jan 2021 11:22

Thanks Zebaa. I can't see anyone letting him a place to live at the moment, he has no money and little chance of a job in the immediate future. Benefits side, no idea and thank you I'll look into it.

My house is safe, we are lucky to be in a great position. Even if something something happened to me and it turns into a long term thing it won't really affect my or my family's lifestyle.

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By Moonbeam
18th Jan 2021 07:48

I just wanted to say how sorry I am that your father has this problem. It sounds truly terrible.

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By bernard michael
18th Jan 2021 09:37

Could he be a paid live in caretaker ??

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By SteveHa
18th Jan 2021 12:55

I'm also unsure what exactly you are asking, but I'll take a stab.

If you let your father live there rent free, then that's by virtue of your position, and you will be liable for the tax on the BIK. You can make good to the company to avoid the BIK.

I am also a little bemused by your reference to "interest". The property is mortgage free, so interest on what? Or are you assuming that the company can charge you interest on the making good and then you claim relief for that interest? If so, I don't see that working. Why would that be qualifying interest?

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A Putey FACA
By Arthur Putey
18th Jan 2021 13:39

I'd venture that what you do (or rather, how you do it) depends on whether you'd rather notionally rent the property, with the contra to your DLA and therefore the company would have rental income and expenses and the co would pay CT on the profit. If it needs doing up the narket rent might not be much. The rent you charge yourself would deplete your loan balance but it would eventually come out in the wash by paying yourself dividends, or when the property is sold (or when you have a negative DLA!). Or take the use of it as BIK. Tax impact of that depends on your own tax position, and the company's ownership structure of course.

It might affect benefits but could the company employ him in some capacity and he could be provided with accommodation thereby shifting the BIK onto him. On the subject of benefits could he claim benefits in order to pay rent on the house?. Some of these suggestions might not work in stressful situations and there are bound to be other factors we are unaware of.

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By legerman
18th Jan 2021 13:45

Could you not just rent it to him at the local housing allowance rates?

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Replying to legerman:
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By Tax Dragon
18th Jan 2021 14:12

Does that get past s97(2)?

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By whitevanman
18th Jan 2021 14:32

As I read it, the OP loaned money to company A which was used to buy a property for onward sale or letting. The money was raised on his own property and presumably it is the interest on that loan he is talking about.
As has been stated above, one can claim relief for interest on a loan to a close company but there are caveats.
Among these is that the close co must not be a CIC and that property should not be let to a connected person etc.
I rather doubt the facts in this case would support a claim as the relevant conditions are to be considered at the time interest is paid and letting the father occupy the property (rent free or otherwise) is unlikely to fit the bill.

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Replying to whitevanman:
Psycho
By Wilson Philips
18th Jan 2021 14:39

The OP has been asked more than once to explain what they mean by a deduction for interest. It is frustrating when such requests go unanswered, leading to unnecessary side-discussions between respondents.

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Replying to Wilson Philips:
A Putey FACA
By Arthur Putey
18th Jan 2021 16:04

Not wishing to speak for the OP, merely repeat what he has already said, vz. "The property was purchased using refunds released from my home". And the reason he mentions interest despite there being no qulaifying loan in play is that the formula for arriving at the BIK requires him to.

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Replying to whitevanman:
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By The Dullard
18th Jan 2021 14:44

whitevanman wrote:

Among these is that the close co must not be a CIC and that property should not be let to a connected person etc

Those are not separate requirements. The company must be a close company, but must not be a close investment company.

It will be a close investment company if it exists otherwise than for a qualifying purpose, and the letting of property to unconnected parties is a qualifying purpose.

It is perfectly feasible for a close company to let a single property to a connected person and still not be a close investment company. We are not told what the company does.

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Replying to whitevanman:
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By Tax Dragon
18th Jan 2021 14:44

Why can't the OP just tell us what s/he means?

I'm not unsympathetic here, it's [***] times for lots of people. But I'm not seeing the connection, implied in the OP, between father moving in and interest becoming relievable under s383 (or whatever section it is). Hence... OP, please clarify what you mean [and how we can help, as I am sure we will if we can].

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Replying to Tax Dragon:
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By The Dullard
18th Jan 2021 14:50

I don't see WVM's "assumption" as unreasonable. It is better than any that have been made so far, albeit I accept that it is an assumption.

The OP has told us that he has used funds "released from my house". "My house", unqualified with a word like "old" or "previous", implies equity release, implies a loan, implies actual payment of interest.

The OP says this is recent, and so it probably hasn't been addressed yet in what tax reliefs there might be available with/without dad's situation. I'm hoping dad has a purple dressing gown though tbh.

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Replying to The Dullard:
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By Tax Dragon
18th Jan 2021 15:05

I didn't say it was an unreasonable assumption. It's similar to that made at 20:09 on 17th Jan, the writer of which comment was hoping for a swift response so she could move on to asking about what the company does.

There's enough cooks here now. I'm out - don't want to spoil the broth.

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Replying to Tax Dragon:
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By whitevanman
18th Jan 2021 19:50

I agree with pretty much everything said since my last post. Mainly (and sadly, a point made on nearly every post we see) the OP has not provided sufficient factual information. Also, I would echo your sentiments about those who steadfastly refuse to answer when asked for info so they can be given the help they crave!
Referring to comments by the Dullard, the OP has said the property was acquired to be refurbished and either sold or let. So, when it comes to the S34 definition of the company existing for a purpose, there really is a crucial matter to consider, especially if the fathers situation is short term and delays etc are due to covid.
The best answer is "we don't know " and the OP certainly isn't helping. So, we are left to speculate to fill the time available!

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By The Dullard
18th Jan 2021 14:46

The interest rate is 2.5%. GRV is nothing like £1,000, unless it's Hugh Hefner's mansion.

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By SouthCoastAcc
22nd Jan 2021 15:23

Guys, please bear with me, I appreciate the helpful responses I really do. As alluded to in the OP by father is unwell and has gone rapidly down hill so my attention has been to try and help care for him.

I will be back over the weekend to update and thanks again for the help.

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