Implications of 2nd house???

gingercordial

cash99 wrote:

If you decided to let the property rent free HMRC have no say in this, whether or not it is let to a family member. They will not allow you a loss on the letting either.

Cash, when I mentioned deemed market rent in my post, I was thinking of the anti-avoidance rules brought in for IHT in terms of parents continuing to live in houses they've gifted to their offspring. Is there any chance the same provisions could deem market rent between family members in this case?

Praying4AMiracle

Hi again

Firstly, thank you for all your input. I am desperately trying to get my head around it all.


...Markymark...Thanks for that. It's good to know we would all 4 get CGT allowance.That's a big relief to us.


...IAKW...I don't understand how making it a "business venture" will affect things, but I will certainly mention it . Thank you.


...Jamesr...Thank you for helping me understand CGT liabilities, I really do need these things spelling out to me!


...Gorgeous George...Thanks for the reply..nice idea parents buying it at full market value. That would be great, nice & simple but they cannot afford it. They are getting on & another mortgage would scare them to death so I think this would be unfair to them and we could just not afford to take on another mortgage at the full market value.

...Ginger & Cash...Thanks very much for your input. From what you say is this right?
We won't be liable for stamp duty even if we did pay full market value (which we can't) as it's under the threshold.

...I think I understand the CGT now and this is going to be the biggest downfall (or biggest cost should I say) I assume the best thing to do is to see an accountant/solicitor about the best way to go about this. But, which one should we see...an accountant or solicitor? I am waiting to see solicitor (he is on hols) but should it be an accountant we see about the future CGT implications? although we will obviously see the solicitor about the house changing hands. Its good news however to know we would all get a personal allowance for CGT so seems like we should go for all 4 names on property then.

...As for charging brother rent, we don't want to. We will be getting a share of profit from house sale along with him in future but feel he should see some benefit to losing his home so to speak immediately . He has low income & has 2 poorly kids ( 12mth old had open heart surgery 6 mths ago & 2 yr old currently having tests for epilepsy) so would be nice for him to have a little extra to spend on them.

...As for him not agreeing to move out....I suppose that's a chance we have to take. We do get on well despite everything and I can't imagine him backing out but I suppose in truth you never know. I am aware that I will have to the footwork on attempting to get rented accommodation for them in the future though! Brother's not very good at that sort of thing and will want me to do the dealings, but that's ok ...at least I'll know where we're at.

...The landlord thing is fine...we have no problem with making sure everything is checked and safe and will replace/carry out repairs as required. We know the guttering and windows will need attention now and we will see to these.

...Cash...you suggest using the equity to clear the £55k ...at the risk of announcing myself as stupid...what exactly does this mean?
...Cash& Ginger..."deemed market rent" I'm sorry this is double dutch to me....not folllowing this at all!

....I'm still in a state of confusion about the whole plan, but thanks to you guys I am beginning to get a grasp of all the obstacles /tax/legal pitfalls and so on. It certainly isn't as straightforward as I 1st thought!!!!
* I would be really grateful if you could guide me on the accountant/solicitor route. Would a solicitor deal with the whole thing....tax implications and all, or would we be better seeing an accountant before the solicitor?*

Thanks so much to you all :T

ps. no progress on redemption figure, nephew taken poorly last night so obviously this has been put on backburner for few days. He is back from hospital today & I'm pleased to say he is doing well tonight.

itsakidsworld

It appears that you are starting to understand what is required now in this purchase and hopefully by the time you speak to an accountant about this you should be able to understand them.

Capital gains tax: I posted that is not a worry for you at this moment and I still say that. This only becomes into effect if and when you ever decide to sell the house so with all respect to everyone who has posted, it is not an issue that should be causing you concern at the moment.

I mentioned in my post about "business venture" which no matter how you look at it, this is what it will be classed as in this country. The very fact that you need to speak to an accountant shows that it is a business venture. Again, no big deal but you have to approach things in the correct manner from the start.

You need to speak to first an accountant for advice as posted ( yes, including CGT for the future!!) and then if you proceed a solicitor second.

You will not be charged by the inland revenue on any rent you do not receive and by the way you have described this situation, you will not be charged any tax at all. But again, by following the correct path at the beginning of this will prevent any problems in the future.

So an accountant is your next port of call as soon as you can. Print these pages off and take them with you. He/She will then let you know what is correct and what is not so that you can free your mind.

gingercordial

Hello again, sorry if we've been overwhelming you with the detail!

What I meant by "deemed market rent" was that in certain cases, if you're letting someone related to you live in a house rent-free, the Revenue can pretend that you have charged them rent as you would have done if you were letting your house to someone you didn't know. They could then charge you tax on the pretend rent. However, don't worry, I wasn't sure about this and both cash99 and itsakidsworld have suggested this shouldn't be the case with your situation, so please ignore me!

No stamp duty on anything under £125k, so you should be in the clear there.

Your solicitor will sort out the legal stuff of the house sale, but yes you should talk to an accountant or tax adviser as well, and probably first so you can then tell the solicitor how you want them to make it work legally based on the tax advice. If you go to www.tax.org.uk then you can look up a chartered tax adviser in your area (use the link in the big blue box). Phone a couple of them and ask for quotes (hourly rates and how long it will take, or a fixed fee). This should be fairly straightforward for them assuming there's nothing particularly odd about any of your financial histories, so it shouldn't take too much of their time.

Good luck! And all the best to your nephew for a swift recovery.

Ian_W

itsakidsworld wrote:

Capital gains tax: I posted that is not a worry for you at this moment and I still say that. This only becomes into effect if and when you ever decide to sell the house so with all respect to everyone who has posted, it is not an issue that should be causing you concern at the moment.

I totally agree with this. You asked for pitfalls and things you need to consider and folks have provided them - but remember that CGT:
1. Is only payable on any profit you make between buying and selling costs, so you'll have to have made money to pay it with and you'll still have plenty left over.
2. With 4 of you buying this tax years personal CGT allowances would mean you'd have made over £35K before there is any tax to pay - those allowances are likely to increase yearly in line with inflation.
3. If you keep the property for a few years, as you intend, you'll also be able to claim taper relief which is a % of the profit discounted for each year you've owned - exc I think the first 2.

We sold an investmment property in April 2005 and this week I've been doing the figures for the accountant to submit for our 2005/6 tax return. We will have only a small amount of CGT to pay due to allowances and taper relief and the money we banked over 12 months ago has earned enough interest to pay half the tax and we actually don't need to pay it for months yet.

Be aware of CGT but don't let it put you off.

Praying4AMiracle

Hi again

Just a quick visit to let you know I have arranged an appointment with an accountant for 20th so I'll take it from there. Thanks again everyone.
Oh and thank you gingercordial I tracked down an accountant from your link.

:beer: