All landlords at some point get to the point where a family member or a friend asks if they can move in to one of their properties. Most landlords aren’t horrible evil people so many will say yes. A good number will also let the rent be lower than a commercial rent because they not only aren’t evil but they’re nice.
If you do this outside of a company this can cause issues. Often the rental will be set at a level to simply break even which of course seems reasonable but the way tax works for higher rate landlords means you will have a liability even without profit (I won’t go over the calcs here but trust me).
Also when something happens and you actually break in to profit (the boiler goes, roof blows off etc) you will be at a loss. Losses generally in portfolios are offset against the profits of other properties meaning that you only pay tax on your overall profit after netting off all properties.
If you have a letting that are rent free or at less than market rate the losses cannot be offset against other rentals. In short if you want to make a loss on a rental as a result of your own decision to charge less than full rent you must take that hit alone. Your tax bill won’t be reduced as a result.
This is before I talk about all the non tax reasons not to rent to family 🤣