Buying house for less than value from Father

darrenkellum

Hi,

I want to buy a house that my father owns.
The value is about 160,000
He wants to sell to me for 120,000

I can take a mortgage for 120,00 and pay him that.

Problem is that he bought it for 145,000.

Will this cause tax issues as i will be buying for less than the value of the property?

The other way we thought would be to get a valuation for as low as possible from the mortgage lendor. say 140,000, then i get a mortgage for 126,000 and my father can gift the difference back to me thus making it back to his asking price.

Has anyone had experience of buy for less than the market value and any problems i may encounter?

RabbitMad

There are 3 tax issues you need to consider here.

The 1st is if your father were to die in the next 7 years and his total estate at that time took him into inheritance tax territory (at least 275K ish from memory). If so it could be deemed that he gifted you £40,000 and some of this money could be liable to IHT.

The second is only applicable if you don't keep the house as your main residence (i.e. let it out) In that case when you sell capital gains tax might be due on the gain and there will be a bigger gain as you bought at such a discount.

The 3rd is that you have bought a property for below the stamp duty threshold. If any further money was to change hand between you and your father (to his benefit) the HMRC might think you are trying to evade stamp duty.

I think the 3rd tax issue is very unlikely. The other 2 might be but I don't know your personal circumstances. If you have any brothers / sisters this transaction at below market value could cause tension.

silvercar

if you are buying for £120k and getting a mortgage for £120k you need to speak to an advisor. I think this is called a gifted deposit ie property worth £160k and dad giving you a deposit of £40k. Only some lenders would be happy with this.

Biggie

I've done this before

and it's legal to do so, just let the solicitor know

the mortagage company don't care as long as they think it's worth above 120k
at the most if they're fussy they'll ask your farther to take out insurance incase he gets sued from someone.

darrenkellum

Coming back to this again,

does anyone know for sure that i cant do this...

Get a mortgage for £120,000, ask halifax what price they have to base that max mortgage on (Ie £130,000). I give dad the £120,000 which is the price he wants me to pay.

Will he have to pay gains tax up to the real value of the house (currently £180,000) or the £130 that was max to get the mortgage?

When do you pay the tax? If any?

Thanks

mustrum_ridcully

If the house is your father's primary residence (i.e. where he lives) then there is no tax to worry about, it is essentially a private sale and he can sell it for whatever he thinks its worth / wants.

If the house is not where you father lives then it is worth contacting an accountant as CGT would normally have to be paid (there are ways around this) even if it was given away for free it'd based on market value of the property.

inspiremetosave

I brought my current house for £10,000 less than the market value from my parents in January and nothing was any different..

chadfield

As you are connected with your father, the transaction will be deemed to be at market value, and needs to be reported on your father's tax return as such (i.e. he will be taxed on the full market value gain-assuming that it is not his PPR). Of course, identifying market value can be a subjective business, but he cannot report a value in his tax return without having some sensible back up for the number used...

darrenkellum

Coming back to my mortgage....

Its been going on a while and now we are at final hurdles. Wondering how others got around this....

Dad has a house worth £180,000

Dad wants £120,000 from me to buy it from him

I am having a mortgage for £120,000 to cover this - Halifax had to write £140,000 purchase to be able to give me £120,000 as they cant give me 100%.

Now two troubles.
1. Have to pay stamp duty as halifax have written £140,000
2. The statement looks as though there is £20,000 left to pay, which my dad does not even want.

My dad's solicitor thinks my solicitor should write to Halifax telling them i am buying for £120,000, dad will gift over the missing £20,000 to me, and have them reply yes/no if they are ok with that. - Thus the mistery £20,000 is no longer an issue.

Does this seem the right way to do things?

thanks

rach29

That seems absolutely right & proper, (I did something similar a number of years ago) You will, I'm afraid have to pay stamp duty at full market value as the tax man will deem that to be the value of the property which changed hands, no matter what the actual transaction value is.

Sounds like your solicitor is on the ball, I would take his advice