Allowing family members to live in a property rent-free is a common arrangement in the UK, but it raises important questions about tax implications. In this comprehensive guide, we’ll cover inheritance tax, Gifts with Reservation of Benefit (GROB), Capital Gains Tax (CGT), and a checklist to help families in South West London and Putney manage these arrangements effectively.
Rent-free living arrangements between family members often lead to misunderstandings about potential tax liabilities. One misconception is that property owners must declare a hypothetical “market rent” for tax purposes. However, UK tax law does not require you to charge rent or declare a market rent on a property occupied rent-free by family members.
Instead, HMRC views these arrangements as non-taxable provided there is no formal letting agreement. This distinction is essential, as it clarifies that there’s no immediate income tax implication for allowing family members to live rent-free. However, other tax considerations, such as inheritance tax and CGT, can become relevant in specific circumstances.
Inheritance tax implications may come into play if you gift the property to a family member or if Gifts with Reservation of Benefit (GROB) rules apply. Here’s how inheritance tax impacts rent-free arrangements:
For more information, see our in-depth blog on Gifts with Reservation of Benefit and How It Affects Inheritance Tax. Read it here.
Property gifting without proper planning can leave your estate vulnerable to Inheritance Tax. Learn how to avoid this common pitfall and protect your family’s inheritance.
Capital Gains Tax (CGT) may apply if you decide to sell a property where a family member has been living rent-free. Here’s how CGT calculations work in this context:
For guidance on CGT when selling a family-occupied property, refer to our dedicated blog on Capital Gains Tax When Selling a Family Property. Continue reading here.
To help families manage rent-free living arrangements effectively and minimize tax implications, here’s a checklist to follow:
Protect your family from costly tax consequences. Our checklist helps you avoid the key traps in property gifting and ensures your transfers are structured correctly for tax efficiency.
For additional insights on managing rent-free living arrangements, see our blogs on Private Residence Relief and How It Can Reduce CGT Read it here. and Do You Need to Charge Rent to Family to Avoid Inheritance Tax?
Managing rent-free property arrangements can be challenging, particularly when inheritance tax, CGT, and PRR are involved. At Lanop Business & Tax Advisors, we help clients in South West London and Putney navigate family-related tax issues with a structured, tax-efficient approach. Contact us to discuss your situation and ensure the best tax planning strategies for your family.
Aurangzaib Chawla is a UK-based tax advisor and Managing Partner at Lanop Business & Tax Advisors. With nearly two decades of experience, he supports individuals, landlords, and SMEs with proactive tax planning and compliance. Known for simplifying complex tax legislation, Zaib helps clients minimise liabilities while building sustainable, tax-efficient strategies for long-term success.
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At Lanop, I am providing my services as the Managing Partner and Tax Specialist. My expertise includes helping medium and small-scale businesses in their accountancy and legal requirements, business start-up support, strategic review, payroll system review and implementation, VAT and tax compliance to cloud accounting. I am also an expert in financial reporting, identifying and monitoring risks, strategic business development, client retention, market acquisition and deals closure by carefully planning my sales cycle.
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