most tax-efficient way for grandparents to move

jpowell79

Hi guys,

I was hoping some tax specialists could assist on the best way to do what I'm looking to do.


Ok will firstly give you some background.

My grandparents were given a property last year (currently valued at £230,000) and were given approximately £60,000 in cash, left in a will of my grandmothers uncle.

My grandparents currently have the house up for sale, and are themselves living in a council property which they have rented for the past 20 years.

What they are looking to do is sell the flat, then buy a property outside of London and move there.

The issue is the flat has been on the market for around 8 months and still hasn't sold.


In terms of my involvement....I am currently renting in London and rent is very expensive. I am keen to get onto the property ladder, but am struggling to save the deposit whilst also renting.

So a suggested scenario came around, which I discussed with my grandparents, and they (in principle) like the idea.

The idea is as follows:

1. My grandparents "gift" me the £60,000 cash they have.
2. we search for a property somewhere outside of London that they like.
3. I get a mortgage on the property (valued at say £200,000) , and move in 4. They move in with me.

5. When the flat they have up for sale, eventually sells (in say 3-12 months), they "gift" me the remainder of the mortgage (£140,000 + early repayment charges) so that I can pay it off outright.

6. I then "gift" them the house and transfer it to them.

They now have the house in their name and around £50k still left in the bank.


You may be asking what is the point of doing all that? Why not just wait until it sells??


Well currently my rent is £1,200 a month, and their rent on their flat is £500 a month.....so that's collectively £1,700 a month going down the drain.

The quicker we move the quicker we start making savings. I would be paying the mortgage (say £1,000 a month) which saves me money, and they save their £500 rent a month.

It also means they can start looking for a property immediately, rather than having to wait potentially another 12 months before they can move....On a personal note, they live next to a huge high-rise council block full of hoodies and other dodgy characters, so am keen to get them to move a.s.a.p!!

Also, the area they are looking to move out to, is very close to where I currently work, so would also save me travel costs.....plus I imagine after having one property, it will help when I eventually come to get my own flat.

I am close to my grandparents, so have no issues living with them for a while.....in fact I would move in with them now if it wasn't for the fact that their current flat is council (which complicates things) and it's so far away from work!

so the question is.....would would need to be paid?

I undersdand the threshhold for stamp duty is 1% up to £250,000, so am guessing they would have to pay £2,000 if the new property was valued at £200k??

As for capital gains tax.....I thought this was based on the difference between the value you got the property and the value when you "gift" the property......well seeing as the time lapse will only be 6-12 months from getting the house, to then giving it away, I imagine this amount is next to nothing (if it applies at all?)

As for inheritance tax....its value is less than £325,000 so I don't think this applies either??

Am I correct with all of these assumptions?

Perhaps there is a far more clever way of achieving the same goal??? What way would you approach it?

Would love to hear some expert advice and opinion on this?

thanks guys.

xylophone

Might they consider giving up the council property and moving into the inherited property and living there for a year, thus establishing it as their principal private residence?

In the meantime, you and they become tenants-in- common on a house that you will buy with their £60,000 and your mortgage.

Once they have sold the inherited property, they move in with you, investing the sale proceeds of their
home at the best rates they can obtain. The house is now your and their principal private residence.

When you sell the house, they take their cut (PPR so no CGT) and buy what they want. You take your cut (PPR so no CGT) and buy what you want.

I stress I'm no expert and you and your grandparents would each have to find a solicitor and get expert advice regarding the proposals and making wills etc.

John_Pierpoint

I am confused by the triangulation of the three properties involved ie how far in distance and time between the three of them? What is this flat they are selling?
Let us call them
CR: Council Rental. (Any other ex local authority neighbours - Right to buy - 5 years?)
GM: Grand-child Mortgaged.
IP: Inheritance Property (A pretty posh £200k flat/house?).

How much are grandparents hoping to spend on this "suburban" (?) home to which the aspire.

There is a danger that one of you all might be "run over by a bus" in the middle of this transaction, you can, if you trust each other, give the person who has advanced the finance a (number of) cheques undated to cover the debt.

Or get involved in changing names at the Land Registry as suggested by xylophone above.

It does make sense to use your(s) PPR capital gains tax relief and avoid making taxable rental payments to a land lord if you can.

Presumably the IP is also now paying Council Tax ?

kidmugsy

I suspect that HMRC would laugh at the proposition that gifting is implied in the transactions "...they "gift" me the remainder of the mortgage (£140,000 + early repayment charges) so that I can pay it off outright.

6. I then "gift" them the house and transfer it to them."

They'd look at those as constituting a sale, I suspect. I'd hope so anyway.

CLAPTON

From a tax point of view I don't see any reason why is doesn't work.

Unlikely to be any cgt as the timescale will be short

Obviously there will be the legal costs of transfers but this isn't a great deal but as money changes hand there may be stamp duty on both the original sale and the 'transfer'. HMRC would almost cerrtainly see the 'gifting' of 140,000 and the 'gifting' of the property as connected transactions (otherwise no-one would have to pay stamp duty as they could agree two gifts).

Also you may have a problem getting a mortgage: the lender will want to know where your deposit came from and will probably demand a letter from your grand parents saying they have no interest in th property.
All a substantial risk to your grandparent as they will have effectively given away 60k

why not reduce the price of the property to sell it more quickly?

jpowell79

Hi Guys,

thanks for your responses on this. In terms of property locations. The inherited 2-bed flat is about 2 minutes away from the Elephant and Castle (not the nicest area in the world, but excellent transport links and is getting ready for a huge renovation project over the next 5 years) hence the flat value is quite high.

The estate agents originally valued the property at £210,000 but my grandparents spent £15,000 on a new kitchen and bathroom to help with the sale, as both of these rooms were probably last updated in the 70's!

The estate agents then re-valued the property at £240,000, but since october my grandparents requested that the asking price was reduced to £230,000 to help with the sale. So far, no joy.

The council flat they rent is close to the Aylesbury Estate in South London. Its one of the biggest estates in the UK and is very run-down.

I live in a place called rotherhithe, also in south London.

They are looking to move out to Upminster (where my nan's sister also lives) or closeby like Hornchurch. They've seen a few properties they like out there are around the £210,000 - £220,000 mark

If they further reduce the property, it may help with the sale, but I think the value is already reasonable.

If they "gifted" me the money, but then I eventually "gifted" them the property back, what would be the worst case scenario, tax wise, based on the estimated propery values I've mentioned?

CLAPTON

the only real issue taxwise is that the transfer from you to your GPs may be liable for stamp duty

jpowell79

CLAPTON wrote: »

the only real issue taxwise is that the transfer from you to your GPs may be liable for stamp duty

If that's the case, would I be eligible to pay or them?

And is it 1% below 250k (which the property would be) therefore worse case about £2k?....which isn't the end of the world

CLAPTON

the 'purchaser' i.e. them and yes 1% of the consideration

John_Pierpoint

CLAPTON wrote: »

the only real issue taxwise is that the transfer from you to your GPs may be liable for stamp duty

The only tax possible downside comes when you decide to strike out and buy your own place. This will be your second purchase and so you will not qualify for the first time buyer Stamp Duty zero rate band.

http://www.hmrc.gov.uk/sdlt/intro/rates-thresholds.htm#1

agrinnall

As Clapton says, reduce the price so that the flat sells and then you don't have to go through all this. You say you think the valuation is already reasonable, but as you aren't a potential buyer your view is of little importance, the only view that counts is that of the people who might want to buy it, and clearly they think it's too expensive.