Dad buying BTL for me and tax implications

marking_bad

Dad wants to buy a house at 100k, with £30k deposit and 70k mortgage over 20 years. I will pay the mortgage through rental payments.

Once the mortgage is paid off (probably sooner than 20 years), my dad will then give the house to me for free as a gift.

What implications does this have regarding tax?
Thanks

eg.

>tax on the gifting it to me?
>tax on earnings made through renting it out? what earnings, all he'd get back is the amount of the mortgage then he loses the house?

Thrugelmir

Barring the fact that the property is let to a family member. (another topic).

The net rental income received by your father will be taxable. So your rent will have to be higher than the actual mortgage repayments.

If the property is gifted. The value of the property at the date of transfer will be subject to IHT in your fathers estate when he dies.

You will be liable to CGT on any taxable gain on the property if you come to sell it at a later date ( again based on the value at the transfer date).

In other words. The tax man blocked this avenue some years ago!

marking_bad

Wow, so much tax, what tax figure would you be looking at in this example, roughly?

Is there a reason this is taxed so heavily?

blackshirtuk

Thrugelmir wrote: »

If the property is gifted. The value of the property at the date of transfer will be subject to IHT in your fathers estate when he dies.

You will be liable to CGT on any taxable gain on the property if you come to sell it at a later date ( again based on the value at the transfer date).

!

not sure that is correct.

If you father survives for 7 years after gifting the house there would be no iht to pay,

Also if it your main home there would be no capital gains tax either.

Your father would be liable to pay tax on "profit" from his btl no profit no tax

Mum_of_3_3

Thrugelmir wrote: »

The net rental income received by your father will be taxable. So your rent will have to be higher than the actual mortgage repayments. The tax man does not distinguish between renting to relatives and renting to strangers, therefore they will consider any rental income as form of self-employed income* and any money you receive from anyone (bar a few exclusions) is taxable.

If the property is gifted. The value of the property at the date of transfer will be subject to IHT in your fathers estate when he dies. Inheritance Tax will have to be paid on the house if he dies before it's transferred into your name it will be lumped in with everything else he owns.

You will be liable to CGT on any taxable gain on the property if you come to sell it at a later date ( again based on the value at the transfer date). People buy and sell houses for profit (or at least they used to), therefore unless you have taken steps as a property developer to buy the house through a company or declare it as a self-employed job (and therefore pay tax on the profit), it will be deemed as an investment by the HMRC and you will have to pay CGT on it, just like you would if you invested in a piece of art and then flogged it for profit.

In other words. The tax man blocked this avenue some years ago!

Hope I've explained this ok? I know what I mean, it's just trying to spell it out in 'layman's terms'.

If you can afford the rental payments can you not get your Dad to gift the deposit and stand as a guarantor on the mortgage? Then the house will be yours and all tax implications will go away.

M_o_3

*Before anyone says it's not self-employed income I know it's not. I know HMRC class it as Schedule A income not Schedule D, but I couldn't think of any better way to explain it to the OP.

CLAPTON

Your father is liable to income tax on the rental income less allowable expenses
the expenses include the INTEREST on the mortgage but not the capital payments
as a landlord he will have to comply with letting rules (gas certs etc)

When he cames to gift it to you then he will be liable to cgt on the gain in value (i.e. the value of the property when transferred less buying price). Note that the transfer price has to be the market value even if he gives it to you for nothing.


If you are to pay the full mortgage payment to him then the transaction makes no sense unless there is some reason why you can't get a mortgage.

chucknorris

marking_bad wrote: »

Dad wants to buy a house at 100k, with £30k deposit and 60k mortgage over 20 years. I will pay the mortgage through rental payments.

Once the mortgage is paid off (probably sooner than 20 years), my dad will then give the house to me for free as a gift.

What implications does this have regarding tax?
Thanks

eg.

>tax on the gifting it to me?
>tax on earnings made through renting it out? what earnings, all he'd get back is the amount of the mortgage then he loses the house?

I'm suprised no one else has asked this but where is the other 10k coming from ie 100k house, 30k deposit and 0nly 60k (not 70k) mortgage

Regshoe

chucknorris wrote: »

I'm suprised no one else has asked this but where is the other 10k coming from ie 100k house, 30k deposit and 0nly 60k (not 70k) mortgage

That's what I first noticed!

If you can afford to repay the mortgage payments then one would assume that you have a sufficient income to cover the 60/70k mortgage (from what I've seen recently lenders are going to around 4.25 times income).

There's a mortgage product that Lloyds do (and there may be other lenders who offer similar products):

Copied from Moneysupermaket.com:

Our opinion: FIXED – Lloyds TSB are offering this Lend a Hand product exclusive for first time buyers. The buyer will need a 5% deposit along with a helper who is prepared to offer another 20% of the property value (to be held in a special Lend a Hand savings account and on which they will earn 4.15% interest) as additional security for the mortgage. The mortgage rate would be 4.99% for 3 years with a fee of £995.

The mortgage rate may be higher than the 2-3% you might get on a 60-70% mortgage but (without doing any calculations) this would probably be offset by the tax your dad would be liable for on rent you pay that covers capital rather than interest on the mortgage.

marking_bad

Sorry, that was a typo, I meant 70k.

Yes, getting a mortgage is impossible in my current circumstances.

LisaLou1982

Couldnt you go on the mortgage with your dad?

martindow

marking_bad wrote: »

Yes, getting a mortgage is impossible in my current circumstances.

Does that mean that you may have difficulty affording the repayments? Maybe now is not the time to accept your father's kind offer.