Ex-bankrupt and gifting a property

cheapmotels

Hi

I wonder if anyone can help me ?

I am a discharged bankrupt living in a rental property owned by my parents.

I have been discharged now for 2 years.

The property is quite cheap for London (£175,000) and it could be a good way to get me back on property ladder.

It was suggested by a mortgage broker that my parents transfer it into my name for a short period (6m to 1year) - and then I get a mortgage on the property and pay my parents for the property with the money raised.

He feels this will make it easier for me to obtain a mortgage as a property owner.

Is this feasible/legal ?

What are the CGT implications if any ? My parents estate is £400,000+

Are there any more relevant sections on this forum where i can find the answer ?

Thanks,

skylight

I would suggest that you employ the services of an independent financial advisor here. Gifting that amount of value is not simple and getting a mortgage is going to be harder/more expensive than you think. The broker may be optimistic in getting one but he gets paid regardless - lots of posters on MSE explain how awkward and tricky it is to get a decent mortgage after BR also for remortgaging as property owners. The best thing is to have a large deposit; so I assume your broker is thinking that the property is gifted to you plus its large equity (is there??) and then use that equity as the "deposit" for the mortgage; the larger the better.

There are also inheritance tax issues depending on how well your parents are and the list goes on.


The broker suggests your parents buy the property you are looking at rather than gifting their own? How do they feel about it all? Would it not be easier to save a deposit and the three of you go on the deeds/mortgage at the same time, purchasing their share from them over the years? Plus, properties cannot always be transfered to another name if there is a mortgage attached (mortgager wont allow it) so would your parents be able to buy this outright to gift it? Why not just get them to buy it now for you and have your "inheritance" now instead??


See - questions, questions!!!! Its why you need an IFA. The mortgages/housing/tax board has IFA hanging around lots so you could ask them (obviously any info on MSE is just personal opinion and not professional opinion and cannot take the place of proper advice).


Start with HMRC: http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

roger196

There are a number of issues here.
Are your parents worth £400k each ie combined estate £800k or £400k in total. Please clarify whether £175k is included or excluded in above figures.
If your parents give you £175k, this is a potentially exempt gift. This means that if they survive seven years, the gift falls out of their estate. Difficult question but are they likely to survive seven years?
Can your parent afford to give away £175k? Are their other children of the marriage who need to be considered. If the property is transferred to you and then you later are unable to get a mortgage, where will this leave your parents? Transfer of property is a chargeable event for capital gains tax purposes...can your parents afford to pay this tax ( and estimate of the amount)
What is the likelihood of them needing nursing home care and will there be sufficient assets left in the estate to pay for this.
Given that you are an ex BR, I would advise parents to put property in trust whereby you are the life tenant. They will need to decide who will be the remaindermen ie who gets the capital after you die.
Proper advice is necessary from someone who currently specialises in IHT/CGT and can carry out whatever legal paperwork is needed. Parents history of gifts is also required.

debtinfo

I think the main point here is that the bankruptcy is past and so there is no problem with the bankruptcy with what you propose, As said above there are many other questions that you need proffesional advice with

andyf1980

The CGT issue definitely needs looking at. I used to know the rules but they have changed so much now. A good IFA should be able to advise you on this and the mortgage. Same as anything, see if you like who you see and a second opinion never does any harm.

cheapmotels

Hi again,

Firstly let me say thanks for the replies. This is my first (technically second) ever post.

I didnt perhaps make it clear in my original post.

My parents own the property outright - no mortgage. I currently pay them rent. They want to dispose of the property to make their life simpler. In answer to the 7 year question - it's borderline but possible. Horrible answer to type.

They would 'give' it to me i.e. transfer it to my name but I would then obtain a mortgage and pay them back a figure. Property is valued at around £175,000 but they would give to me at a lower figure of £125,000. They paid some crazy amount for the flat about 7 years ago.... £36,000.... so I would hope that nobody would think that selling it on for £125,000 would seem like a low value.

I have no deposit and virtually zero chance of saving one as I pay maintenance and I'm single blah blah blah. The equity would form the deposit.

My parents total estate is less than £800k. The £175k value of property is included in this figure.

I have 3 siblings so this is not a 'gift' or inheritance but a 'simple' purchase/business deal. It's just that due to my circumstances it is unorthodox.

I can't see why inheritance tax is payable as technically I am buying it from them - just in a reverse fashion !

I have discussed this with 2 IFA's previously but they both gave quite different advice.

Thanks