A parent with spare funds to invest may like to consider purchasing a property for their student son or daughter to live in whilst at university, in order to save on student accommodation costs.
We recently advised a client that, so long as their son or daughter lives in the property as his or her main residence, they can let out furnished rooms and take advantage of rent-a-room relief. This means the student can receive rental income of up to £7,500 a year completely tax free, regardless of any other income they may receive.
The main point to highlight here is that the student does not have to own the property – the parent(s) could retain control and continue to own it, letting their student son or daughter occupy it as their main residence. The student can then in turn let rooms to friends and use the rent received to fund his or her living costs at university, without relying on the bank of mum and dad!
If the rental income is more than £7,500 per annum, the taxable profit can be calculated under the rent-a-room scheme by deducting £7,500 from the rental income and taxing the remainder. Alternatively, the profit can be worked out in the usual way if this is more advantageous.
Care needs to be taken as if the parents receive the rental income, rent a room relief would not be in point and the usual tax rules would apply. Please contact our property investors group or your usual Whiting and Partners contact for further advice.