own mothers property but live in rented.

rodmac51

I bought my mothers house about 5 years ago at a price well below market value. My mother continues to live there and pays a nominal rent, also well below the market rate, and will continue to live there until she either moves voluntarily or dies.

However, I live in another rented property and unlikely to ever live in that house (too far away). I can't afford the deposit to buy a suitable property to live in myself, so will continue to rent. When my mother dies I will either sell it or let it, depending on when that is and what my financial position is at the time. I realise this is not the most efficient use of resources but I have little choice until the house can be sold.

What I would like to know is:

Firstly, I have deliberately kept my mothers 'rent' below £3000 a year as she can gift that much to me each year and it won't be taxed (and she couldn't afford much more anyway). So I treat this as a regular gift, not a rental income, but is this likely to cause problems later?

Secondly, when I do sell will the capital gains be based on the price I actually paid or the true market value at the time?

Thirdly, if I'm not charging a true rent can I still offset the costs of repairs and/or improvements against any capital gains?

mountainofdebt

I think - and I stress I think - that there may be problems ahead if your mum is only paying a nominal rent as it might be seen as your mum getting ridof her assets so that she can avoid nursing home bills etc.

Secondly I think that what ever rent you are charging it is still classed as unearned income rather than the money being a gift from your mum and thus you should declare it as such.

Which needs nicely onto the third point.....if you look at it logically, how can you offset repairs against capital gain if you don't pay tax on the income - I think it would be seen by the powers that be that you are trying to have two bites of the cherry so to speak.

roswell

I think what the Op means to post is the following.

Purchased house off the council using my moms discount and she is a co-owner (for discount reasons)

Or something along those lines.

roswell

And a possible answer and i cant confirm thsi is to remorgage to the full value of the property to get the equity out .. but i dont know if that can be done legaly to avoid IHT

silvercar

You could get a buy-to-let mortgage on the property that your Mum lives in and use the money you release to buy a property for yourself.

Bossyboots

As you bought below market value, the residual value will be classed as a gift to you. As she still lives in the property and is not paying market rent, it will be classed as a "gift with reservation". This means that for capital consideration and IHT purposes, she will be deemed to still own the value of difference between what you paid and what the property was worth. (I hope that makes sense, I'm rubbish at explaining things).

rodmac51

roswell wrote:

And a possible answer and i cant confirm thsi is to remorgage to the full value of the property to get the equity out .. but i dont know if that can be done legaly to avoid IHT

I'm not trying to avoid IHT as my mothers estate is unlikely to ever reach that level and equally at the present time I'm not worried about releasing equity, although that could well be a consideration later. If I do, I can't see how that would affect the capital gains though.

And you're nearly right - she was a co-owner but isn't any more:T

Bossyboots, I'm not sure I understand exactly what you mean (nothing to do with your explanation, more to do with me being too thick:rolleyes: )? If she is still deemed to own the difference will that make my capital tax liablity better or worse?