Renting to Family Members - IHT impact where no rent paid.

Jona

Hi all.
I wonder if someone can clarify for me.

Client has a rental property that their son lives in. The son pays no rent.

Can this "lost" rental income be excluded from IHT considerations under gifts out of normal income exemption (although I am not sure as the rent has never been received, therefore not taxed as income and therefore not made from surplus net income)

Or would it be a series of PETs (after deduction on annual exemption amounts).

Thanks

richardgough

So let's look at this slightly differently.
What requirement is there to charge rent to a tenant in law? (I'm going to ignore non relevant pension scheme issues here).
As far as I can see there is none.
If I owned a spare home and wanted to charitably let some previously homeless individuals live there rent free then I can find no law which says I cannot do this (ignoring the sensibility of such a course of action).
Therefore, I cannot see that your client has to charge a rent to their son; and there is certainly no requirement in this case to charge a 'market rent'.
Therefore I would argue that the 'lost' rent - which could actually be a peppercorn rent of £1 per annum is irrelevant for your client's IHT position.
They own the house; no attempt has been made to gift it so it remains in their estate. There is no rent so nothing has been lost to the estate.
IHT does not apply to opportunity cost losses (well not yet anyway; there is a budget coming up!!)

Jona

Thanks @richardgough
Very much a Monday brain yesterday - your synopsis is far more logical than my assumptions.

arongunningham

Maybe they should give the property to the son, that'll help?

Jona

Yes that is what they are doing (plus other kids) - was just thinking around the availability or not of 2 x years of annual exemption to knock off the value of the PET when the gift is made.