(I have never heard of this before and will be asking my accountant next week; to me it sounded a little odd but our quite principled IFA said it was something they've seen a few times)
We bought a house for cash a while back when cash-rich and rent it at to people we want to support at a preferential rate as a sort of social enterprise thing, i.e. let's say the market rental rate is £500pcm and we actually charge £250pcm.
We could now do to get some of the cash via a mortgage but the very low yield is likely to cause issues with lenders e.g. we are looking so far at best-case 45% LTV whereas without this issue there are very good 75% LTV products out there.
In our meeting with our IFA, he said that in this case he has seen people increase the rent but then do some kind of cashback with the tenants. For instance we up the rent to £350pcm but give them £100 Sainsbury giftcard each month. He didn't exactly say we should do this but brought it up as a viable option he would not have an issue with.
It seems a little weird to me but obviously you do get cashback deals on loans, mortgages, etc so maybe not.
- Has anyone here come across this idea before, or even been involved?
- Does it sound legit or dubious to you?
- Would this be something we could actually put in the rental agreement?
- Is there a reason that giving a voucher is better than just cash?
- How would it affect the tax position? Seems to me we'd be increasing our taxable income £1000pa since I doubt you could write this off against income
Now, I can see one could circumvent this entirely and simply raise the rent £100pcm and give the tenants £100pcm out of one's own pockets. There is a £3k IHT allowance and less well known perhaps, you can give monthly/regular payments to anyone as long as it comes as part of your taxed income not your savings for instance if you know someone who is really struggling you can give them £200pcm as long as it doesn't affect your standard of living.
But this option would be totally based on mutual trust you would give the money after raising the rent A more official approach seems prudent but is it really above board?
We bought a house for cash a while back when cash-rich and rent it at to people we want to support at a preferential rate as a sort of social enterprise thing, i.e. let's say the market rental rate is £500pcm and we actually charge £250pcm.
We could now do to get some of the cash via a mortgage but the very low yield is likely to cause issues with lenders e.g. we are looking so far at best-case 45% LTV whereas without this issue there are very good 75% LTV products out there.
In our meeting with our IFA, he said that in this case he has seen people increase the rent but then do some kind of cashback with the tenants. For instance we up the rent to £350pcm but give them £100 Sainsbury giftcard each month. He didn't exactly say we should do this but brought it up as a viable option he would not have an issue with.
It seems a little weird to me but obviously you do get cashback deals on loans, mortgages, etc so maybe not.
- Has anyone here come across this idea before, or even been involved?
- Does it sound legit or dubious to you?
- Would this be something we could actually put in the rental agreement?
- Is there a reason that giving a voucher is better than just cash?
- How would it affect the tax position? Seems to me we'd be increasing our taxable income £1000pa since I doubt you could write this off against income
Now, I can see one could circumvent this entirely and simply raise the rent £100pcm and give the tenants £100pcm out of one's own pockets. There is a £3k IHT allowance and less well known perhaps, you can give monthly/regular payments to anyone as long as it comes as part of your taxed income not your savings for instance if you know someone who is really struggling you can give them £200pcm as long as it doesn't affect your standard of living.
But this option would be totally based on mutual trust you would give the money after raising the rent A more official approach seems prudent but is it really above board?
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