We all like to help family where we can, and renting to a family member can be a great idea.
Knowing the tenant's character and background can offer the landlord peace of mind. And might feel less daunting for the tenant than moving into an unfamiliar environment.
But renting to a family member isn't as simple as you might think. Let's go through some of the things you'll need to bear in mind.
Are you allowed to rent to family members?
Yes, there aren't any laws stopping you from renting to family members. But you'll need to let your mortgage provider know about it.
Sometimes this means stricter lending criteria, and in some cases they won't lend at all. This is because they might assume you'll be a more lenient landlord if you're renting to family members. This could include not running proper reference checks, or not taking a full security deposit from them.
What type of mortgage will I need?
If you plan to rent your property to close family members, you'll likely need a regulated buy-to-let mortgage, also known as a family buy-to-let mortgage.
But you'll need to check your mortgage terms. Some buy-to-let mortgages won't let you rent to family members, so you might need a specialist family buy-to-let mortgage.
If the property you're renting out is your own home, you'll need to ask your mortgage provider for a consent to let. A consent to let is a written agreement between a homeowner and their mortgage lender. The agreement grants permission to rent out the property for a temporary period, while keeping the existing residential mortgage.
What sort of home insurance will I need if I rent to family?
If you're renting a property to family members, you'll likely need landlord insurance. Standard home insurance policies typically don't cover situations where the property is rented out, even to family.
Landlord insurance provides specific coverage for risks associated with renting, such as damage caused by tenants, loss of rent, and liability for injuries.
Do I need to let HMRC know if I’m renting a property to family?
Yes, all rental income, regardless of whether it's from family or friends, must be reported to HMRC. If you're renting property to family members and receiving rental income, you need to declare it to HMRC. Even if the rent is below market value.
You'll need to include this income in your Self Assessment tax return, and you may be liable for income tax and National Insurance contributions on any profits.
HMRC may also scrutinize the arrangement to make sure it's genuine. Especially if the rent is significantly below market value.
Will I need to declare rental income to HMRC?
If you receive income from renting out land or property, you may need to tell HMRC even if you do not need to pay tax on it.
The first £1,000 of your property income is tax-free. But if you're earning more than that, you’ll have to report it to HMRC.
If you’re just renting a room, you can earn up to £7,500 a year through the Government’s rent-a-room scheme without being liable for tax.
Can I rent a room to a family member?
Yes, you can rent a room to a family member. It's not illegal, but there are important considerations, especially regarding your mortgage and tenancy agreement.
If they pay you more than £7,500 a year, you’ll have to pay tax on the income.
Can you rent a house to a family member on benefits?
Yes, it is generally possible to rent a property to a family member who is on benefits. But it needs to be a genuine, commercial arrangement. This means having a formal tenancy agreement in place and the tenant paying rent.
If the family member is living with you, they generally cannot claim benefits for the rent.
Tips when renting to family
Renting to family is a unique situation that can look different for everyone. You're going to trust a family member more than a stranger. But that's all the more reason to make sure everything runs smoothly.
Here are some top tips when renting to family:
- You still need a tenancy agreement: You might think this is unnecessary when renting to people you already know. But it's important to make sure you've got a proper contract in place. You don't need to sign a written agreement to create a legal tenancy - but without one you are powerless to do an eviction quickly if you need to.
- Check the terms of your mortgage: This is important if you have a mortgage on the empty property, and you haven't let on a commercial basis before. Always check the terms of your mortgage before renting it out. This is important with a standard residential mortgage, but some buy-to-let mortgage lenders also restrict letting to family members.
- Check your landlord insurance: Check with your insurer to make sure both the buildings insurance and contents insurance is covered when letting.
- Carry out an inventory: Make sure you have a proper inventory so there's no arguing about the state of the property on the way in and out.
- Don't just skip the usual checks: When renting to family you'll trust them more than a stranger. So you might think it makes sense to skip over credit checks and guarantor arrangements. But it's a good idea to carry out referencing checks using a reputable company. No matter who you're letting your property to. This is usually a requirement of landlord insurance too.
- Be clear about the rent: Be clear and transparent about the cost of rent, and consider how you'll tackle rent increases.
- Make sure you meet health and safety rules: Get your annual gas safety check and Energy Performance Certificate. You must also fit smoke detectors and carbon monoxide alarms.
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