What does the law say about renting to family members in the UK?

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In the UK, there is very little law around renting to family members and if there is, laws are vague and hard to interpret.

This is mainly due to the fact that if you are renting to family members, most people come up with their own rules anyway.

If you are trying to add a family to your property for the first time or wondering if you need a tenancy agreement or need to pay tax, all of these questions will be answered throughout this article so you can move forward with confidence.

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Is it possible to rent to family members?

To answer the question simply, yes you can rent to family members and it is within the law. You may also give family members a discount on rent but things aren’t always this simple.

What you decide to do depends on a range of factors including the amount of money you need to make from the property and if you have a mortgage on it.

Is it legal to rent to family members?

When renting to family and friends, it is not against the law. Having said this, there are some things to consider before doing so. 

Firstly and most importantly, if you still have a mortgage on the property, you’ll need to inform your mortgage lender and check that you have the right type of mortgage for renting out your property to family members. 

This might involve converting your standard mortgage to a buy-to-let mortgage in order to allow family members to live in the house but at the same time, some buy to let mortgage providers still have terms and conditions against this.

It’s important to let your mortgage broker know that you’re planning to rent to family or friends too as they will help you find a suitable mortgage and will likely know more than you when it comes to finding the right loan. 

However, it’s worth noting that some lenders are hesitant to issue buy-to-let mortgages for this purpose due to concerns.

These concerns relate to lower rent payments, missed payments, and increased regulation and even if you find a lender willing to provide a buy-to-let mortgage, they are likely to impose stricter terms on the agreement.

law being discussed about renting amongst family members

Is it a good idea to give a family member or friend a discount on rent?

When you’re considering renting out your property to a family member or close friend, it’s often with the best intentions as you want to help them out by providing a new home or giving them a leg up in tough times. 

As a result, the temptation to offer a discounted rental fee can be strong and it might seem like a good idea, but it’s not always practical.

It’s not only about the money for yourself as while you may not be seeking to make a profit, there are other stakeholders to consider like those in charge of the buy-to-let mortgage. 

If you’re renting to a family member or friend, this can complicate things as you may not want to charge them the full rental amount which would be enough to pay back the mortgage.

Because of this, discounting the rent to a family while there is a mortgage in place is considered high risk to the bank or lender issuing the loan. They would only want to know the full amount of rent is being charged so the landlord can pay their money back.

Is it necessary to charge rent at all?

Charging rent on a property is pretty much mandatory if you’re trying to rent a property that has a buy to let mortgage on it because unless you are going to pay for the mortgage yourself, which defeats the whole purpose of an investment property, you’ll be defaulting on your mortgage payments.

However if a landlord owns a property outright and wishes to house a family member without paying rent, then this is a choice that is up to them.

This is typically done in a residential property for close family members such as if a parent is looking after their children. Nonetheless, it can be done for other family members too such as elderly relatives.

Do I need a buy-to-let mortgage when renting to a family?

Typically, you will need to buy a mortgage if you want to rent out to your family but it is not mandatory. The reason why you will likely need a buy to let mortgage is because most people do not buy a property outright.

Instead, they most likely will use a mortgage in order to manage the housing asset without having to sink all of their money into the deal. Using debt in this way is how landlords are able to produce excellent returns on their money invested.

For instance, if there is a property that has a 25% mortgage and the property costs £100,000 in total. The person who uses a mortgage can manage the house with just £25,000 invested whereas the person will have to invest the full £100,000.

If you use a mortgage and put down a deposit, you will have mortgage payments to make but even with this cost included, the cash on cash return is far greater if you take on debt.

Do I still need a tenancy agreement?

A tenancy agreement is essential if you want to avoid any disagreements or misunderstandings with your landlord or tenant. This document will detail everything from the rental amount to the pet rules, so that both parties understand what is expected of them. 

Make sure the terms you agree on are thorough and specific, and consider having an inventory in place as well as this helps protect the furniture in the property.

You must take a deposit as part of the tenancy agreement, but it is critical to protect it by using one of the three government-backed deposit schemes available. 

This is done to ensure that tenants can easily get their deposits back if they follow the terms of the agreement. Keep in mind that the Tenant Fees Act of 2019 prohibits landlords from charging certain fees to their tenants though. 

So, be aware of the specifics of this legislation to avoid problems later on.

a row of houses renting to family

Should you do tenant referencing on family members?

When renting out to family, it is a good idea to take the same process you would do any other tenant to conduct referencing and apply it to them, especially if you are relying on a family member to help you pay off a buy to let mortgage.

In fact, some lenders will not allow you to take on a tenant unless they pass a certain tenancy referencing process anyway.

Should you protect a family member’s deposit in a tenancy deposit scheme?

Whether or not to ask for a deposit when renting to friends and family is a personal choice as deposits are intended to protect the landlord in the event that the tenant causes property damage, but accidents can happen even with the best of intentions. 

It’s critical to consider whether you’d be willing to pay for any damage caused by your loved one during their tenancy or if you will cover it yourself. 

It is recommended that you obtain a deposit, but if you are hesitant to request a full deposit, you could consider using Deposit Replacement as a compromise if you don’t want to upset your family member as a tenant.

Aside from the deposit, there are a few other things you should take care of such as having an inventory check performed before your loved one moves in will help to avoid disputes over damages when they leave. 

Another important consideration is reference checks, even if it feels awkward to ask friends or family for financial information you should remember that you will still have to pay taxes on the income after fulfilling your property income allowance.

Also, if you purchased your building or content insurance through your mortgage lender, there may be restrictions on who you can rent the property to.

Rent Guarantee Insurance, which requires referencing your tenants and may make an awkward conversation easier, is also worth considering but you should also keep in mind all of your responsibilities as a landlord.

They include maintaining safety standards and certificates in your property and ensuring that things like licences and energy performance certificates are up to date as this will be just as important when renting to people you know.

If you find that you are still not sure how to go about dealing with a deposit from a family member then it may be worth speaking to a solicitor, especially if the deposit is particularly large.

Should you take out landlord insurance when renting to family members?

No matter who is renting your property, it is always a good idea to have landlord insurance with rental protection coverage though and also issue tenants with a how to rent guide.

Consider landlord insurance to be similar to standard home insurance, with the addition of buildings insurance as standard. However, landlord insurance provides additional coverage for potential issues, such as a tenant being injured on your property or failing to pay rent. It’s an added layer of protection to give you peace of mind if something goes wrong.

Should you pay tax on the rent from family members?

Yes, in the same way as if you were renting to anyone else, you need to pay tax on the rental income received from family members. For the full details on what this tax is, click here.

However, the tax is likely to be paid on your personal income if the property you are renting out is in your personal name and if not tax is paid- at the rate of corporation tax that you can find here.

If your family is on universal credit, are you able to rent to them?

If you have a family member that is on Universal Credit (more about this here) you will definitely be able to rent to them. However, they may find that council housing is better suited to them based on their rent affordability.

Whatever you do, make sure you have a formal agreement in place surrounding this for both the family member;s and your sake and be sure that you aren’t living with the same family member as this is illegal.

It could be seen as subletting which is against the law for those who are on government benefits.

paying off a mortgage early

To summarise

When concluding this topic, the most important thing to understand is that renting to family members brings a fair amount of risk if there is a dispute in the tenancy agreement.

While there is the legal aspect of renting, you also should deeply consider if renting in this way is worth it given you are also managing the relationship you have with your family member as well as the tenancy.

Making logical business decisions and being reasonable with what you would allow in an investment property may change with family as things like keeping a tenancy deposit or issuing a rent increase may appear immoral.

At the end of the day, you do not want a family member living in a property rent free, when you want them to pay something towards rent just because they are family, so take the necessary precautions.

The best thing you can do to minimise disputes is to be as clear about the finances involved with the property and what a tenant may or may not pay from the beginning so there are no surprises.


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Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.


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