Can I purchase a house and rent back to myself

Discussion in 'Property investment and tenants' rights' started by jeskrett, Jul 18, 2008.

  1. jeskrett

    jeskrett Guest

    We get a rental allowance of £3K per month from our employers as part of a temporary relocation agreement due to last 3 years and have just signed up for a 12 month tenancy agreements with an agent (31K per year) so we have now tied up twelve months allowance.

    We have just sold our property putting us in a position to now purchase a brand new house ideally in the area that we are renting approx 850K. We do not want to rent out this house to anyone else.

    Q Is it legal to employ a rental agency to set up a new tenancy agreement that allows us to rent the new house back to ourselves for the following 24 months (62K). In other words can we be landlord and tenant?
     
  2. dazza21ie

    dazza21ie Frequent Poster

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    No.
     
  3. jeskrett

    jeskrett Guest

    please explain why no
     
  4. mercman

    mercman Frequent Poster

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    jeskrett. I disagree with dazza. I think you would be allowed as long as you were up front with your employer. What difference would it make - you or your spouse are obviously valuable enough to pay such a generous relocation package. You may be best asking your solicitor for their opinion.
     
  5. ClubMan

    ClubMan Frequent Poster

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    Doubt it. Even if it was possible you would have to pay stamp duty as an investor on the new property and would then be liable for income tax on the rental income. Either it would be very complicated and possibly not worth it or simply not allowed either under standard Revenue rules or anti-avoidance rules. You need professional advice.
     
  6. jeskrett

    jeskrett Guest

    Ok many thanks, having slept on this maybe would be better to get a higher rate of interest return by smacking the proceeds from the house sale 600K + in a hight interest account?
     
  7. budapest

    budapest Frequent Poster

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    That would seem to be the best course of action. You benefit in every respect.
     
  8. rmelly

    rmelly Guest

    assuming the (single) bank doesn't collapse.
     
  9. ClubMan

    ClubMan Frequent Poster

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    Inflation is about 5% at the moment. Other than some regular saver rates of 7-8% most lump sum rates are in or around 5% gross or 4% net of DIRT. Your money could well be losing value in this case.
     
  10. rmelly

    rmelly Guest

    Does the inflation rate actually matter in the specific case where the entire lump sum is to be used to purchase one specific type of good, and where the price of this good is not increasing at the rate of inflation and indeed may be decreasing.

    Even in a housing market where prices are increasing, inflation is not relevant - the rate of price increase for the type of property/locale etc is (ie house price inflation). I could view a property for 500k now, inflation is at 5% house prices increasing 10% per annum, so a year later to buy the same property I need 550k, not 525k.

    Or am I talking rubbish? Above is assuming I am paying in cash only, no mortgage.
     
  11. dazza21ie

    dazza21ie Frequent Poster

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    Last edited: Jul 21, 2008
    You cannot take a lease from yourself its just a principle of law.

    You could do something like form a company to buy the property and lease the property from the company but this has so many different tax consequences that might not be worth the hassle.
     
    Last edited: Jul 21, 2008
  12. joejoe

    joejoe Guest

    Really, as part of a course I am doing at the moment law is an important section, we have not yet talked about such a thing mentioned in this thread. Where are you getting your information from? Is there a link to it? "Could it be that by entering in to contract with yourself and partner, you a creating grounds for a potential conflict of interest?"

    Joejoe
     
  13. ClubMan

    ClubMan Frequent Poster

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    Possibly not. However I don't really understand you. :) Then again macroeconomics was never really my forté. :eek: I did wonder in the past about, say, HICP inflation being more relevant than CPI inflation to those who are mortgage free since the former excludes mortgage costs.
     
  14. j26

    j26 Frequent Poster

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    He's correct on the not granting a lease to yourself. It's a nonsense in law, in the same way as you can't transfer property to yourself, and can't enter a contract with yourself. No interest in the property is actually passing, so any deeds/documents are meaningless.

    It could be done through a trust where you pass the legal title to someone else (but retain the beneficial interest), and you take a lease from that legal owner, or else form a company as dazza said.

    Edit: Or your partner cold own it and you take the lease.
     
  15. dtlyn

    dtlyn Frequent Poster

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    Assert if you are actually leasing it to yourself.

    You could possibly come to an arrangement whereby you buy the house and lease it to your company for the purposes of your tenancy.
     
  16. Purple

    Purple Frequent Poster

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    Why not just ask your employer if you can use the money to service the interest on a mortgage instead? If they agree then happy days; no complex legal or tax issues and you get your money.
     
  17. ClubMan

    ClubMan Frequent Poster

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    Presumably there will be BIK issues in this case - or maybe regardless?
     
  18. z109

    z109 Guest

    As I understand it, inflation rates ex-mortgage costs are about 3.8%

    What else that is related to house ownership that is included in CPI can only be gleaned from the CSO website, but may reduce the OPs personal inflation rate (the amount the increase in costs affects them). The rental allowance may also give them scope to reduce this effect (if they are permitted to rent somewhere for less than 3k and then use the remainder to pay heating and utility bills).
     
  19. Purple

    Purple Frequent Poster

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    I would think there would be BIK either way.
     
  20. MrMan

    MrMan Frequent Poster

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    Won't the company pay your stamp duty bill and transaction costs instead of rental?