Sister and BiL living with me-rental income issue

Money recieved for house bills where some off bills being reimbursed to me in full by sis and BiL

Didn't find your answer?

Hoping some of you can assist me with this quagmire.

I have recieved a letter from hmrc about suspected non declared rental income.

I live in my own mortgaged home with my wife and baby since 2017. We had my sister and brother in law move in with us due to their  personal circumstances just before covid and to help them out I did not request any contributions for the house hold costs etc during this time.

Then from late 2021 when they both got back on their feet they started as way of paying us back for looking after them during a very tough time. they started covering my monthly mortgage payment (I have very low loan to value and monthly mortgage is circa £450per month but market rents in similar houseshare situation would be double this with bills on top for houseshares  here locally). Also later on my sister started covering gas and electric bills and c.tax with me covering all other household expense and acting as household taxi etc. 

We all get along and tbh it's working well we have a large house and enjoy the company and don't mind them staying as long as they want to since they are able to save up for their own home  e.g. like a child moving back in with parents  but this tax headache was unforeseen. 

I never thought this would be classed as rental income as was just helping out my sister but seems hmrc is of opinion this should have been declared. Never had to deal with anything like this tbh as I earn via salaried employment which is taxed through paye. 

I have done some research and there is the rent a room scheme I believe if this is classed as renting that I would qualify under in our case and the mortgage payments would equate to less than the 7.5k tax threshold but not sure if when they started also paying bills if that would also be included which would take it over and I'm assuming I owe tax on this portion. I make all the payments and they reimburse me so is no profit. 

Any advice will be greatly appreciated TIA 

Replies (24)

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By Paul Crowley
08th May 2024 14:29

How did HMRC know?
Figure that one out first.

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Replying to Paul Crowley:
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By Roland195
08th May 2024 14:35

I agree - you need to try to find out how HMRC know about this. The usual sort of intelligence comes from Local Authority Landlord Registrations, Council Tax, Letting Agents & Disgruntled Spouses (or tenants/neighbours) but none of these would seem to be in evidence here.

Has the BIL requested or shown a tenancy agreement to someone perhaps?

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Replying to Paul Crowley:
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By Ha12ry27
08th May 2024 14:38

Paul Crowley wrote:

How did HMRC know?
Figure that one out first.

Not sure exactly but to clarify I live next door to my parents as I other side of the semi, and never bothered to change my address over for most of stuff including electoral roll etc so must have flagged it on their new fangled computer system.
Other issue I can see is I have bank statements showing payment made to contribute to household expenses (addressed to my parents address next door) but my sister and BiL were also initially living next door for bit before they moved in with us and again never bothered to change their residence address.

Tbh we treat both houses as one larger house anyway as are a pretty closeknit family.

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Replying to Ha12ry27:
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By Paul Crowley
08th May 2024 14:46

Are you absolutely certain that housing benefit is not being claimed, or some other benefit that needs details of living circumstances and costs of accommodation.

That is how both my recent new clients with undeclared rental income got busted by HMRC
And quite a few before.

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Replying to Paul Crowley:
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By Ha12ry27
08th May 2024 14:54

Paul Crowley wrote:

Are you absolutely certain that housing benefit is not being claimed, or some other benefit that needs details of living circumstances and costs of accommodation.

That is how both my recent new clients with undeclared rental income got busted by HMRC
And quite a few before.

Is no benefits involved either with me and my family (except child benefit for my daughter) or by sister and her husband as they both work full time and neither of us would qualify due to income and savings.

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Replying to Ha12ry27:
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By Paul Crowley
08th May 2024 15:25

Sister has loads of income and savings?
Why did she not contribute from day one?
What used to be working tax credit was income based, as is universal credit.

Have you actually asked them? Both of them?

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Replying to Paul Crowley:
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By Ha12ry27
08th May 2024 17:25

Paul Crowley wrote:

Sister has loads of income and savings?
Why did she not contribute from day one?
What used to be working tax credit was income based, as is universal credit.

Have you actually asked them? Both of them?

Hi I know it sounds odd but was covid times and wasn't really much to spend on due to all the lockdowns etc so savings went a long way vs nowa days also cost of living wasn't crazy like now when they moved in.

Definitely no benefits involved, bro in law wasn't allowed to at time as was on spouse visa so couldn't aim benefits even if he 2anted, and sister couldn't as was working full time job.

As elder brother culturally didn't feel right asking for money from sister as meant to look after sister regardless, and wasn't really much in way of extra expenses so we're easily absorbed at the time. when things started getting a bit more difficult when utilities costs skyrocketed is when I had a frank conversation and they started contributing there onwards.

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Replying to Ha12ry27:
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By Paul Crowley
08th May 2024 18:26

There you go, add the culture bit and nobody will dare challenge it.
I had a client get away with a challenge. He was selling his labour and Mum selling materials. Added together meant VAT. HMRC walked away from it. Quickest enquiry I dealt with in years.

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Replying to Ha12ry27:
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By Roland195
08th May 2024 14:50

I'm not sure I really follow this set up & game of musical addresses but then I doubt HMRC would either and doesn't explain what has tipped them off in any event.

You need to have a frank conversation with your Sister/BIL about what exactly they have been describing their living situation as with officialdom - If they have claimed they are tenants for the purposes of Tax Credits for instance then this is going to be a nasty can of worms & may effect the advice you receive.

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Replying to Roland195:
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By Ha12ry27
08th May 2024 14:54

Roland195 wrote:

I'm not sure I really follow this set up & game of musical addresses but then I doubt HMRC would either and doesn't explain what has tipped them off in any event.

You need to have a frank conversation with your Sister/BIL about what exactly they have been describing their living situation as with officialdom - If they have claimed they are tenants for the purposes of Tax Credits for instance then this is going to be a nasty can of worms & may effect the advice you receive.

Is no benefits involved either with me and my family (except child benefit for my daughter) or by sister and her husband as they both work full time and neither of us would qualify due to income and savings.

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Replying to Ha12ry27:
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By Roland195
08th May 2024 15:06

Have you actually talked to them about it? You mention personal circumstances that brought them to live with you (via your parents) in the first place.

There is no guarantee that this is what has sparked HMRC interest but it seems the most likely in the circumstances.

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Replying to Roland195:
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By Ha12ry27
08th May 2024 15:27

Roland195 wrote:

Have you actually talked to them about it? You mention personal circumstances that brought them to live with you (via your parents) in the first place.

There is no guarantee that this is what has sparked HMRC interest but it seems the most likely in the circumstances.

Yes talked to them extensively since I got the nudge letter they haven't done anything to prompt the letter I think it's more my fault for not my updating address to my property next door and potentially looking like u was potentially renting out my home Instead of living here which has maybe prompted it all from hmrc pov, as land reg shows me me as one rof next door but all official docs pretty much still show me at parents address next door.

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Replying to Ha12ry27:
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By Roland195
08th May 2024 15:45

It's not impossible that if you are the registered owner of the property & not on the Electoral Roll/Council Tax but someone else is, HMRC assume the property is being let or at least enough to prompt the question.

If this is the case, there is no reason that HMRC will not accept your explanation about family living together & sharing costs.

That said, I would say to your Sis/BIL that this is your intended course of action and if they have anything to tell you, now is the time...

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Replying to Ha12ry27:
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By lionofludesch
09th May 2024 07:56

Ha12ry27 wrote:

Roland195 wrote:

Have you actually talked to them about it? You mention personal circumstances that brought them to live with you (via your parents) in the first place.

There is no guarantee that this is what has sparked HMRC interest but it seems the most likely in the circumstances.

Yes talked to them extensively since I got the nudge letter they haven't done anything to prompt the letter I think it's more my fault for not my updating address to my property next door and potentially looking like u was potentially renting out my home Instead of living here which has maybe prompted it all from hmrc pov, as land reg shows me me as one rof next door but all official docs pretty much still show me at parents address next door.

So far as HMRC are concerned, then, you live in one house and your sister lives next door in a house you own. How does that qualify you for Rent a Room relief?

You're a victim of your own bone idleness.

You've now no evidence that you ever lived in your own house. Your best plan is to explain to HMRC that you've been an idiot and hope they accept your story.

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Replying to Roland195:
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By Paul Crowley
08th May 2024 15:20

Agree completely.
The address mess makes things a bit confusing but someone thinks family 2 is paying rent to family 1
That someone was not told by bank statements being posted to one of the houses.

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By David Ex
08th May 2024 14:38

You need an accountant.

https://find.icaew.com/

Other professional bodies are available.

https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers

“If you intend to plan a course of action based on what you read in here, you should instead be taking professional advice.”

“They are not here to provide free accounting advice.”

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Replying to David Ex:
By JCresswellTax
08th May 2024 16:39

David Ex wrote:

You need an accountant.

https://find.icaew.com/

Other professional bodies are available.

https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers

“If you intend to plan a course of action based on what you read in here, you should instead be taking professional advice.”

“They are not here to provide free accounting advice.”

On this occasion, I would suggest a tax advisor, www.tax.org.uk or www.att.org.uk rather than an accountant.

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Replying to JCresswellTax:
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By Roland195
08th May 2024 16:50

Why? If there is a tax issue at all it is a relatively simple one that the OP will be perfectly capable of responding himself to explain.

Our concerns were more around what will fall out if he does contradict information held elsewhere but that isn't a tax matter.

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By Jane Wanless
08th May 2024 14:44

I would argue it's not a rental income issue at all. It's simply cost-sharing between family members. HMRC may think there's a rental issue if sister & BiL both use his surname, so it's not so obvious that it's all one family.

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Replying to janewanless:
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By Ha12ry27
08th May 2024 15:30

janewanless wrote:

I would argue it's not a rental income issue at all. It's simply cost-sharing between family members. HMRC may think there's a rental issue if sister & BiL both use his surname, so it's not so obvious that it's all one family.

This is what I'm hoping but maybe I. Just thinking the worst with hmrc being involved and this letter out the blue.
My name and my sisters name and BiL name is different so with them asking for proof any contributions to household costs will look suspicious I reckon.

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Replying to Ha12ry27:
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By Paul Crowley
08th May 2024 15:53

If you are totally confident that HMRC have not been tipped off, then you could choose to write a simple letter stating that you are not letting the property, and that you live there with your family, including sister and brother in law. HMRC may well then show their hand.
I have done it both ways in the past. Lived at sister's house and had sister living in mine. HMRC did not contact either of us at any time.

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By lesley.barnes
08th May 2024 16:56

" I think it's more my fault for not my updating address to my property next door and potentially looking like u was potentially renting out my home Instead of living here which has maybe prompted it all from hmrc pov, as land reg shows me me as one rof next door but all official docs pretty much still show me at parents address next door."
Could you shed some light on this? Do you own the house next door or is it your parents?

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Replying to lesley.barnes:
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By Ha12ry27
08th May 2024 18:00

lesley.barnes wrote:

" I think it's more my fault for not my updating address to my property next door and potentially looking like u was potentially renting out my home Instead of living here which has maybe prompted it all from hmrc pov, as land reg shows me me as one rof next door but all official docs pretty much still show me at parents address next door."
Could you shed some light on this? Do you own the house next door or is it your parents?

Next door Is my parents house but lived their from 1 yrs old till bought next door when it came up for sale as needed more space about 6 yrs ago but still spent plenty of time next door tbh initially was just using my house to sleep at night before I got married and Mrs moved In with me and we needed bit more privacy as a married couple.

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By Tax Dragon
09th May 2024 05:55

You say that, while the mortgage and bills are in your name, your sis+bil reimburse the full cost. That doesn't sound to me like cost sharing [so I think you can probably ignore much of what has been said above].

If it's not cost sharing and it's not rent, what is it?

Property law is different in different parts of the UK but is mightily complex in all 4 nations. I am not competent to comment. But it's possible that, if you don't view this as, and declare it as, income from property then, rather than buying the right to stay in your property, what could be happening in law is that your sis and bil are paying for an interest in the property itself.

You might be best advised to pay the tax.

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