CG65610 - Private residence relief: dependent relative: rent free: payments made

S226(1) TCGA92 refers to the payment by the dependent relative of ‘any other consideration’. So, on the wording of the legislation, any payment by the dependent relative to the claimant will prevent relief. Interpreted literally this is unduly restrictive and so is relaxed by ESC D20.

Relief will not be lost where the dependent relative

· pays all or part of the occupiers council tax or rates, and/or

· pays the cost of repairs attributable to normal wear and tear, and/or

· makes other payments, provided that no net income is receivable by the individual, taking one year with another.

It does not matter if the payments are to the individual claiming the relief, for example, a contribution to his or her payment for repairs, or direct to a third party. This is illustrated by the examples below.

Income Receivable

The income receivable by the claimant should be taken to include all sums received from the dependent relative as consideration for the provision of the property. This should include sums received towards repaying the mortgage, both interest and capital; whether received directly from the dependent relative or paid by the dependent relative to the mortgagee.

Deductions to arrive at net income

Against these receipts should be set sums paid by the claimant, or directly by the dependent relative, which would be deductible in computing income receivable under Schedule A. So no deduction can be made for payments of mortgage interest or capital. This is illustrated by example 2.

Example 1

For many years A has provided a residence to his father. His father pays the council tax each year. In one year, A spent £2,000 redecorating the house. His father contributed £1,000 towards the cost. These payments by the father to his son and by the father direct to the local authority fall within ESC D20 and so do not jeopardise A’s claim to relief under s226 TCGA92.

Example 2

B buys a house for her mother, paying for it by a mortgage of £30,000. B pays the council tax of £400 each year. She also pays £200 each year on average on repairs and other outgoings in respect of the property. Her mortgage repayments are £3,000 each year to which her mother contributes £1,000.

B is not entitled to dependent relative relief and is not assisted by ESC D20. She receives £1,000 each year from her mother which is treated, for this purpose only, as income receivable under Schedule A. Against that the expenses which would be deductible under Schedule A total £600 leaving her a net profit of £400. The mortgage payments of £3,000 are not deductible under Schedule A and so play no part in the computation.