Joint mortgage with mother - tax implications of sale?

KerryGold

I hope this is the right place - feel free to move or suggest a repost.

In 2000 I bought my flat. I wasn't earning enough to be granted a mortgage in my own right even though I could afford the mortgage so my mum took out the mortgage jointly with me so the bank would consider her salary as well and therefore lend us the money.

Neither of my parents have ever paid a penny of the mortgage. Me and for the last 3 years also my husband have been paying it but the mortgage remains in the original names.

The main reason we haven't changed the situation is because we would have had to pay solicitors fees etc and the name at the top of the letter isn't a problem.

However, soon we will be hoping to sell the flat as my husband and I want to buy a house. My parents still have a mortgage on their own house so we're thinking now about issues involved with selling.

Since the flat is not my mum's main residence would she be liable for tax on income from its sale? How is best to avoid this? Should we just pay a solicitor and my mum transfer her share to my husband for £1? Is the possible? Would it be better to take her name off the mortgage and leave it just in my name? The problem with this is currently my employment is temporary and I might not be accepted for a remortgage on my own - I have been in the same temporary position for 18 months and my current contract expires at Christmas.

Please help I feel really stuck!
Thanks!

BobProperty

I don't think you can avoid accounting for any tax due on the disposal of your mum's share of the flat. This question may get more response in the Tax forum.

Bossyboots

Can you clarify that your mum is on the deeds as well as the mortgage.

KerryGold

Yes. The deeds are the same as the mortgage.

Bossyboots

I can't see how she can avoid capital gains tax but everyone has an allowance and as her share of the profit is only half it may well be that she won't be liable for anything. It might help if you post up the purchase price of the flat, the current market value and the amount of the mortgage so those with more knowledge in this area can work some figures out for you.

silvercar

You may be able to get a document drawn up stating that you mum has only a marginal interest in the property. Just because you are joint owners does not mean you own equal shares. A solicitor would be able to advise you.

If that is not possible then your Mum would have a tax liability as this is not her principal private residence. You need to calculate the current value less the buying price. Take off a bit for costs and a bit for owning it for 6 years and you will be left with the chargeable gain. Presuming your Mum has not used her capital gains tax allowance this year she has an allowance of £8,800. Any gain over this is charged at 10, 20 or 40% depending whether she is a non, lower or higher rate tax payer.

Bossyboots

silvercar wrote:

You may be able to get a document drawn up stating that you mum has only a marginal interest in the property. Just because you are joint owners does not mean you own equal shares. A solicitor would be able to advise you.

If that is not possible then your Mum would have a tax liability as this is not her principal private residence. You need to calculate the current value less the buying price. Take off a bit for costs and a bit for owning it for 6 years and you will be left with the chargeable gain. Presuming your Mum has not used her capital gains tax allowance this year she has an allowance of £8,800. Any gain over this is charged at 10, 20 or 40% depending whether she is a non, lower or higher rate tax payer.

I think the taxman might have expected a document denoting shares in the property to have been produced at purchase. I fear it is too late now and it will just be seen as an attempt at tax avoidance.

KerryGold

Okay.

We paid £33700 for the flat in 2000.
The mortgage was £29500.
It now stands at something like £26500.
The flat is now likely to be worth in the region of £80k
My mum is a teacher and so an average rate tax payer.

Is there no way for her to 'sell' her portion of the flat to me or my husband for a nominal sum of like £1?

Thanks

BobProperty

KerryGold wrote:

.....Is there no way for her to 'sell' her portion of the flat to me or my husband for a nominal sum of like £1? .....

She can, but the taxman is wise to this and will consider the disposal (i.e. sale to you/husband) to be at market rates, just to make sure the taxman isn't missing his cut of anything .

silvercar

I'n no accountant but here is a rough calculation:

gain = 80,000 - 33,700 = 46,300

purchasing costs (?) =1,300

chargeable gain = 45,000

your Mum's share = 22,500

property owned for 6 whole years, so 80% gain remains chargeable = 18,000

CGT allowance = 8,800

tax paid on 18,000 - 8,800 = tax on 9,200

20% tax (assuming basic rate) on 9,200 = 1,840