Urgent help needed. Dad helping daughter needs help

your_guest

Hi

I need some help please. I am very worried my Dad. In the last 12 months he has had a heart attack, and has had to retire due to medical reasons. So you can see I want to ensure he has as little stress as possible. I am hoping somebody can help advise me as he has tried to help me by using his name and credit history and is now being investigated by the Inland Revenue.

Bear with me - this is a long one.......

In May 2001 I bought my first property with my then partner for £71,500. We got independent financial advice and proceeded with a joint 100% mortgage with Northern Rock. Between June 2002 and March 2003 we split up and I purchased the property from him. The property had earned equity of approximately £30,000.

I applied to Northern Rock for the mortgage to be transfered to my name only and to borrow an additional £15,000 to buy out my ex-partners half of the equity, but as I had no credit history I was declined.

After speaking to my Dad he suggested that he appear as a named applicant on the martgage with me (he was previously the guarantor) in order that I could obtain the mortgage without my ex-partner. My Dad also said that he and my Mum would take out a loan and write my ex-partner a cheque for his share of the property. I spoke to Northern Rock again and explained that my Dad would go on as a second applicant but that the mortgage repayments would still come from me and this was because they refused to let me become the sole applicant on the mortgage. Northern Rock accepted the application for my Dad and I to hold the mortgage.

As you can see from the amounts I am talking nothing more special than a 2 up 2 down.
My Mum and Dad have never had more than one property, the family home. We come from a hard working, honest, working class family. We have earned everything we own, I can remember when I was a bit younger waking up in the morning and my Dad would already be on the morning shift, come home in the afternoon and then back to work for the evening/night shift.

Sometime after I took over the mortgage I was having trouble meeting the repayments, my parents lent me an amount each month which was paid into my bank account, I then paid the mortgage each month from my bank account.

In November 2004, I moved and sold the property. I bought in a new town. I took my mortgage out with Nationwide, again with my Dad being the second applicant. As still I couldn't obtain a mortgage by myself, even with the amount I was transferring from my sale. I transferred most of the money to the new mortgage and a bit went to my personal bank account to pay back my parents. I got a bankers draft for my Mum and Dad to cover the loan to buy out my ex-partner's half and the money they had lent me to meet my mortage repayments.

In my current property I have met all the mortgage payments by myself from my account.

My Dad has told me that the Inland Revenue have sent him a letter stating that they want to investigate him for the period 2004-2005. He rang them and they explained that he should have paid additional tax in the period 2004-2005. My Dad has held one job for the last almost 30 years and has paid tax and NI every month on his earnings so could understand what they were talking about. They eventually told him that it was to do with him selling a property in 2004. My Dad thought they were mistaken and couldn't understand what they were talking about still!!!! This shows the level of involvement my Dad has in regards to my property!

They then went on the explain that he should have paid a capital gains tax on the property sold in 2004 as it was a second property. My Dad didn't know what this meant so the Inland Revenue explained this to him. My Dad explained his position to the person from Inland Revenue and they have said all the documents requested need to be produced prior to the 24th November 2008.

I also had no knowledge of capital gains tax or the implications for my Dad helping me to buy my home! I'm in shock and I don't know what to do!

Please any help or advice for an very independent man (my Dad) who has acted with his big heart. He now has no income as he can't work due to his health and I have no savings and am desperately worried.

Many thanks for your time and any help. As you can see time is of the essence and it is experience or qualified help we need. With the anniversary of his heart attack looming and the need to keep his blood pressure steady I am panicking. I feel so so guilty and very embarrassed and so am using an alias on here. I have been a member since the start and know how you all help and pull together and equally when needed kick butts into gear at times. So I need you this time, big time.

silvercar

The Inland Revenue are assuming that your Dad was joint owner and (as it wasn't his principal private residence) any gain made on the property would be subject to CGT.

From the way you have described it, your Dad may have been the legal owner of half the property but he was not the beneficial owner. His ownership was only there for you to secure the mortgage; the property was all yours. The revenue should accept this, add to the proof you have of the loan repaid to your parents the letters rejecting your application to take over the mortgage on your own and then the subsequent joint mortgage application.

Worst case would be if the revenue reject your arguements and insist the property was jointly owned. Then the CGT calculation would be based on the difference between the selling price and the valuation at the time your Dad went on the deeds. Less transfer and selling costs, less CGT allowance.

jimmo

I am sure you will realise that yours is not an uncommon story in this day and age and whilst you have not said it, in so many words, your dad and you probably became joint owners of the property in order to satisfy the mortgage company’s requirements to grant you a joint mortgage.
The way your story reads there seems to be absolutely no doubt that, despite the fact that you and your dad were joint legal owners, you were the sole beneficial owner. Beneficial ownership is all that matters for tax purposes.

Therefore your dad really has nothing to worry about in terms of tax liability but you and he could have a problem in what you may see as HMRC harassment but HMRC sees as simply trying to establish the facts.
I seriously suggest that, rather than sending the documentation they require in the post, you arrange to meet with the person who wrote to your dad. Things may have changed since I left but the letter to your dad probably has a direct line number for the individual concerned. Talk to that person. Tell him or her that your argument will be that you were the beneficial owner and you want to discuss it face to face.
In my days the person who started this sort of enquiry was working from the basic facts, the knowledge that you and your dad were joint legal owners. They did not appreciate the difference between legal ownership and beneficial ownership, they just worked on the bits of paper they had.
I like to think that if you meet with the person who started the Enquiry you can knock this on the head but if you can’t you will leave the meeting thinking he or she is a “jobs worth”.
Can you handle this? As long as your story as posted is accurate you have right on your side. However, depending on the person you meet from HMRC, you might get a quick resolution or you might get a lengthy battle.
I suggest you go for the meeting but if you cannot settle the matter there and then you will have to seriously think about getting professional advice.