My father-in-law is wanting to live the remainder of his life in a nice bungalow near our family. I've agreed, in principle, to be his landlord.
Let us work with the following numbers:
- House price of £150k, with a deposit of £60k
- Father-in-law is 78. When he passes away, we want to retain ownership of the house without excessive inheritance tax, and then rent it to a new tenant
- Monthly payments will be that my father-in-law pays for the bills and half the mortgage as rent (approx. £300 pm) and my partner and I pay the other half of the mortgage (£300)
Now if I have a buy-to-let mortgage, then I have to contend with higher costs (higher interest rate, higher tax contribution, landlord insurance etc.)
On the other hand, I could have a gentleman's agreement whereby the monthly payments are gifts, which avoids taxes but has the potential to cause a lot of problems if there are any disputes.
My question is, what type of mortgage is 'best' in this case? By 'best', I mean tax and cost efficient whilst setting up the property for future rental potential.