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Selling house cheap to family member

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  • Batchy
    Batchy Posts: 1,632 Forumite
    Biggest problem is the higher the valuation to increase 'equity' which will make mortgage payments lower will mean an increase in CGT payable...

    Maybe its worth your while getting a LOWER valuation!!!... and giving him a gift, of cash for x amount to contribute to his deposit so he can buy it, to make the 'market value' purchase.

    Its better if you seperate the transactions I would have thought.

    One is CGT

    the other is Inheritance Tax on your son for the lifetime transfer, which would only be susecptible to IHT in the event of your death within 6 years and a day of the date of the cash 'deposit' gift!!??

    Any experts on this issue?
    Plan
    1) Get most competitive Lifetime Mortgage (Done)
    2) Make healthy savings, spend wisely (Doing)
    3) Ensure healthy pension fund - (Doing)
    4) Ensure house is nice, suitable, safe, and located - (Done)
    5) Keep everyone happy, healthy and entertained (Done, Doing, Going to do)
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    If the house was ever your main residence you will be allowed 'private residential relief' which amounts to the taxable amount being pro-rated down (plus an additional 3 years) and also you get an additional 40k allowance (or it was last year I haven't checked this years yet but I would expect it to be the same, but obviously check this in the IR website)

    not quite - you are mixing up your allowances.
    The £40,000 you refer to relates to lettings relief and applies only to the scenario where a property in which you have at sometime lived as your main home (principal private residence) has also been let out while you owned it. The actual amount of relief is the lowest of 3 things: i) the gain during the PPR period, or ii) gain during the let period or iii) a £40,000 maximum figure

    if the OP wants to reduce the CGT laibility please post further info:

    - where do you live currently, ie: your own home or in the property in question?
    - have you ever lived in it after you inherited it?
    - is it in your sole name or is it joint owned with your partner?
    - how long ago did you inherit the property?
    - have you made a PPR election to HMRC?
    - have you claimed Council Tax exemption?

    happy to explain what all this means if you come back with the answers!
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    Batchy wrote: »
    the other is Inheritance Tax on your son for the lifetime transfer, which would only be susecptible to IHT in the event of your death within 6 years and a day of the date of the cash 'deposit' gift

    ?
    that is the potentially exempt transfer rule for which taper relief applies over a 7 year period, don't know where you got 6 years +1 day from?

    http://www.hmrc.gov.uk/cto/customerguide/page13-1.htm
  • beorc
    beorc Posts: 9 Forumite
    00ec25 wrote: »
    if the OP wants to reduce the CGT laibility please post further info:

    - where do you live currently, ie: your own home or in the property in question?
    - have you ever lived in it after you inherited it?
    - is it in your sole name or is it joint owned with your partner?
    - how long ago did you inherit the property?
    - have you made a PPR election to HMRC?
    - have you claimed Council Tax exemption?

    happy to explain what all this means if you come back with the answers!

    My brother died in May this year and probate has still to be granted at this point, however the will leaves the property to myself only. I have never lived in the property. Since probate has yet to be granted no coucil tax exemption has been claimed for.
    My idea was to help my son get on the property ladder, he currently rents somewhere else along with his wife. The property was valued circa 100k for probate and the other properties around the area aren't actually going for much more (maybe 10k). I suggested he gave me 75% market value and I would give him the other 25% for use as a mortgage deposit.
    I want to be able to help him out and obviously do it legally, but cheapest way for both parties. Any help is appreciated. As for PPR I don't understand that i'm afraid.
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    Simple solution as others outlined, given that in the current market house prices are slow moving, may be falling, may be rising in your area, (but if rising it’s not by much) is as follows:

    - As others said get a written valuation from your estate agent to confirm the value at date of sale to your son, this will confirm the size of the gain (if any!) at market prices. The gain in value between probate being granted and sale completing should be small or zero because the housing market between May 2009 and now has probably been falling rather than rising !
    - Sell the house to your son as soon as probate is granted at £75,000 cash payment by him and £25,000 gifted deposit from you if that’s the deal you want.
    - Have everything in place (eg son’s mortgage offer!) prior to probate being granted so that sale completes as soon as possible after probate.
    - Subtract probate valuation of £100,000 from EA’s valuation and you may have no gain at all on which CGT would be taxed. (note - if the gain is negative you cannot get a rebate!!)I
    - Even if there is a gain then you, as the sole owner, are allowed £10,100 personal CGT exemption for the 09/10 tax year so if the gain is less than that you would obviously pay no CGT at all, only if the gain is more will you pay CGT eg: gain from May 2009 to date of sale is say £15,000, your CGT payable would be 15,000 – 10,100 = 4,900 x 18% = £882

    A more complex solution would involve you living in your brother’s house for a short period and exercising your right under tax law to make an “election” within 2 years of you obtaining grant of probate which informs HMRC which of the 2 properties you then own is your PPR - the house you live in (ie your home :D) is defined as your Principal Private Residence.

    once you have recorded the property as your PPR, the rule is that, subject to you having lived in it for a period as your declared PPR, then whether you continue living in the house or not is irrelevant, as the last 3 years of ownership confer automatic 100% CGT exemption, eg: say probate granted Oct 2009, you live in the house for 1 week in Nov 2009 and inform HMRC of that fact, you then complete the sale to your son in say Jan 2011. You will pay no CGT at all as the sale took place within the last 3 years of your ownership of your (by Jan 2011) ex PPR as you are back living in your own home.

    please note that if you do that you will incur 1 weeks worth of CGT on your own home when you sell it. eg using some example numbers for your own home, the calculation would be: purchased 1 Jan 2000 for £150,000, lived in alternative declared PPR for 1 week in Nov 2009, then sold 31 Dec 2019 for £300,000 = gain £150,000. PPR exemption period 19 years less 1 week so 150k x (987 weeks / 988 weeks) = £149,848. CGT to pay therefore 150,000 - 149,848 x 18% = £27.32 pence! (19 years x 52 weeks - 1 week)
  • beorc
    beorc Posts: 9 Forumite
    thanks for that explanation. I'll see what we can do then. Just need him to sort his mortgage out (although that may be a problem in current times!) Fingers crossed.
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