Buying a second home - avoidance of capital gains tax

Charlie7

Hi I'm new to the forum and desperately need some sound advice and help. My dad 74 has an interest only mortgage and the captial sum for the house £98,000 is due to be paid in 2010. This was due to be paid from his pension. As you can imagine there is no lump sum to pay for the house. I would like to help out and am considering getting a second mortgage with my partner so that in the interim before my parents sell the house and downsize we are atleast paying off some of the capital instead of the interest which is crazy. We would pay the mortgage and when mum and dad are ready to sell, in their own time, they could pay back us back the money. However, it appears that this isn't as simple because we have been advised that when we sold we would be charged capital gains tax. when we are not actually getting any capital gain but instead just trying to help out my parents in the interim. Can anyone give some sound advice as to how we could best help out without having to pay tax please. Any advice much appreciated.

CLAPTON

If you just want to help your mum and dad why not simply give/lend the money to overpay on their mortgage and then they give you the money back when they sell up
Seems no benefit to anyone in getting a new mortgage unless theirs is on a very high APR

Charlie7

CLAPTON wrote: »

If you just want to help your mum and dad why not simply give/lend the money to overpay on their mortgage and then they give you the money back when they sell up
Seems no benefit to anyone in getting a new mortgage unless theirs is on a very high APR

That seems a very good interim approach Clapton but the main problem is that the bank want the money on the 1st january 2010 and at the moment it is not the right time for my parents to sell. They want to stay in the house for a few more years. Any other suggestions.

CLAPTON

I understand a little better now

If you take a mortgage on 'their' house the mortgage company will require you to be owner or part owner of the house.

Normally then, when it was sold you would be liable for CGT on the gain on your share (so if you owned half the house then your would be liable to the gain on half the house less CGT allowance).
However, you would be able to argue with the HMRC that although you were the part legal owner in fact your parents were the beneficial owner of the whole house. i.e. you name on the house deeds was merely a legal device to get a mortgage but it wss always the intention for your parents to own all the house. .. a bit uncertain I know

Other options ... can you get a remortgage on your own house? Your parents could then sign an agreement to say they owed you the money etc. maybe a bit risky for such a large amount of money.

Maybe worth consulting a mortgage broker to see if there is anyone willing to give indefinite interest only mortgages or maybe one that would accept you as guarantor for the loan

Charlie7

CLAPTON wrote: »

I understand a little better now

If you take a mortgage on 'their' house the mortgage company will require you to be owner or part owner of the house.

Normally then, when it was sold you would be liable for CGT on the gain on your share (so if you owned half the house then your would be liable to the gain on half the house less CGT allowance).
However, you would be able to argue with the HMRC that although you were the part legal owner in fact your parents were the beneficial owner of the whole house. i.e. you name on the house deeds was merely a legal device to get a mortgage but it wss always the intention for your parents to own all the house. .. a bit uncertain I know
.......................................................
Has anyone ever successfully made this arguement do we know - . How can I find out without incurring expensive fees. would HMRC be able to advise?

Stipple_2

There is one potential disadvantage in you taking a mortgage on your parent's home or part of it. In the (hopefully very unlikely) event of you going bankrupt I think the house could be taken to pay your debts. This is one argument for parents not putting their house in their children's names.

Has your Dad been in touch with his mortgage provider? Perhaps they would extend the mortgage for a few years to allow the sale to take place when the market is more buoyant?