inherited house mortgage advice

DVardysShadow

deedee71 wrote: »

I can see what you're saying but these are three grown men earning on average £18k per year who can't raise the relatively small sum of £25k between them. (I'm sorry if that sounds harsh ).

This could be their one opportunity to get some money behind them to start a business with some capital - not starting off by borrowing and then the whole thing could go pear-shaped.

Even if they borrow £25,000 they will have £145,000 of assets to back them up. So no matter how dire the outcome, they will all be able to get out of debt and take a sum of money away from this.

While you are right to inject some caution, I feel that your outlook on this is too timid.

holly_hobby

Burridge60 wrote: »

If major works are required it is unlikely to fit the criteria of most BTL lenders as this will require it to be rented or actively marketed for rent within three months of funds release.

Potentially a BTL mortgage could be "mis use of facility" as the OP's stated intention is not to rent it out but to do up and turn the property back to the market. ie property development.

I haven't thoroughly read the whole thread, but did see the OP said just needs upgrading, and that it is in a habital condition, with all essential amenities.

If thats the case, there is a light refurb BTL mge product in he market place - which may be useful for them to know - subject to their meeting the lenders criteria (the issue to explain selling and not letting it, could be that they struggled to let in the current market conditions and decided to dispose of the property instead ...... although technically of course any application under this guise would essentially be mge fraud (not something I would ever professionally recommend of course) - if anything went belly up and the lender did a bit of digging !!

The OP needs also to be mindful of any ERPs and mge exit fees that will apply to any mge arrangemet effected, together with fees and taxes of course, which will obv have a negative impact on the gross gain realised on sale.

Residential SVR/pen free deal is the answer, but I gather the OP and siblings don't wish to reside in the property as the main residence (which would also quite nicely deal with any CGT liability they may be otherwise exposed to after their annual relief).


Hope this helps

Holly

Thrugelmir

twelvegoldbars wrote: »

yes it will only be CGT on the profits split 3 ways

Property redevelopment will be viewed as a trade not a capital gain.

So each of you will pay tax and nic on your share of the profit. Tax being calculated on your own total personal income for the year. So potential danger of a 40% rate.

Resulting in a far lower net return.

You should ask yourselves whether its worth the trouble. May be better to sell the property and settle respective debts. Then use the remaining equity to form a business in which you can all share.

holly_hobby

Solely as its inherited I'm not sure if they may be able to get away with CGT - as the property was not purchased with the intention of development, but inherited as part of the division of the decd's estate, with their updating/refurb of it to enable the best price upon disposal on the open market.

BUT, I'm not 100% sure on this point .... so to save guessing either way, the OP needs to consult with a tax adviser or HMRC directly.

Holly

twelvegoldbars

Thrugelmir wrote: »

Property redevelopment will be viewed as a trade not a capital gain.

So each of you will pay tax and nic on your share of the profit. Tax being calculated on your own total personal income for the year. So potential danger of a 40% rate.

Resulting in a far lower net return.

You should ask yourselves whether its worth the trouble. May be better to sell the property and settle respective debts. Then use the remaining equity to form a business in which you can all share.

i agree on the 40%,which is combining are own day to day job with the house to be done up and sold,but after a period of time there will come a time when we would be in a position to leave our own jobs and continue with the venture of buying refurb propertys and selling them on,anyway you look at the situation we will at some point be paying 40% tax rate ,in which we would be satisfied that we are within the law and paying the correct amount of tax on our earnings,i think that makes sense !:o,but this is the future ,for now we need to raise 25k to at least get our mums house done ,and review the situation after that

twelvegoldbars

holly_hobby wrote: »

Solely as its inherited I'm not sure if they may be able to get away with CGT - as the property was not purchased with the intention of development, but inherited as part of the division of the decd's estate, with their updating/refurb of it to enable the best price upon disposal on the open market.

BUT, I'm not 100% sure on this point .... so to save guessing either way, the OP needs to consult with a tax adviser or HMRC directly.

Holly

good post holly,im not sure either ,but i think if we sold the house as is,as the valuation at 145k we wont pay CGT,but if we do up and sell we pay 20% on the profit FROM 145k,but if it goes into a business venture,then the next house could fall into the 40% tax band,(but proberly not beacause it would need to build up?more than likely after the 4th or 5th house maybee

Thrugelmir

twelvegoldbars wrote: »

i agree on the 40%,which is combining are own day to day job with the house to be done up and sold,but after a period of time there will come a time when we would be in a position to leave our own jobs and continue with the venture of buying refurb propertys and selling them on,anyway you look at the situation we will at some point be paying 40% tax rate ,in which we would be satisfied that we are within the law and paying the correct amount of tax on our earnings,i think that makes sense !:o,but this is the future ,for now we need to raise 25k to at least get our mums house done ,and review the situation after that

In the hey day of the property boom. Few property developers that refurbished property actually made money. As it was the general movement in the property market that gave them the profit, not the added value from the work done. As much profit could have been made purely by buying the property, holding for a period of time, then selling again.

twelvegoldbars

Thrugelmir wrote: »

In the hey day of the property boom. Few property developers that refurbished property actually made money. As it was the general movement in the property market that gave them the profit, not the added value from the work done. As much profit could have been made purely by buying the property, holding for a period of time, then selling again.

i absolutley agree,but,lets say hypotheticaly that we buy another house ,let it sit until property prices increase,the house would deteriate quite a lot as in damp/rot general wear and tear,this would add to the cost of the refurb,which would have to be done to provide a family a good decent livable house,we certainly couldnt sit on a property without turning it into a decent house,unless we went down the renting out avenue,which brings with it its own set of more expensive problems,i.e,installation of fire alarm system,1 hour fire protection ceilings/walls,acoustic sound proofing and also the dealings of tenant abuse/damage etc,this is assuming we went down this route but for the time it would be buy/refurb/resell,then possibly looking at renting out houses that would pay for the mortgages,this is a long way off though !,but food for thought,one step at a time !

holly_hobby

twelvegoldbars wrote: »

good post holly,im not sure either ,but i think if we sold the house as is,as the valuation at 145k we wont pay CGT

Thats correct, as there would be no gain - as you would have sold it for the same value as that inherited.

The fig for any CGT calc is the excess difference between the value of the acquistion cost (in this case that would be the value of the property when the decd died), and the selling price. Any gain would then be split between you for CGT calc purposes, to which you would then apply your annual unused CGT allowance - to determine the net fig liable for taxation. (obv if the property acts a primary residence of any of the beneficial owners pre-sale, the CGT exposure will be different for them).

By the way - I am now positive that there is no income tax exposure on the proceeds of this sale (of an inherited property even if refurbed/updated for sale), although there will be a CGT calc on any gain as discussed above (i.e sale price - acquisition value = total gain for distribution and calc purposes).

HOWEVER, any gains from subsequent property development purchases will be liable to income tax - as the asset was purchased in a business venture capacity for property development, the proceeds being classed as one of your sources of income, and thereby subject to normal income tax rules and regs via SA or annual accounts.

Of course, I shall end with my standard advice, that it always imperative that you personally verify forum advice (esp re tax), directly with a tax advisor, HMRC or another suitably qualified practitioner.

Hope this helps

Holly

twelvegoldbars

holly_hobby wrote: »

Thats correct, as there would be no gain - as you would have sold it for the same value as that inherited.

The fig for any CGT calc is the excess difference between the value of the acquistion cost (in this case that would be the value of the property when the decd died), and the selling price. Any gain would then be split between you for CGT calc purposes, to which you would then apply your annual unused CGT allowance - to determine the net fig liable for taxation. (obv if the property acts a primary residence of any of the beneficial owners pre-sale, the CGT exposure will be different for them).

By the way - I am now positive that there is no income tax exposure on the proceeds of this sale (of an inherited property even if refurbed/updated for sale), although there will be a CGT calc on any gain as discussed above (i.e sale price - acquisition value = total gain for distribution and calc purposes).

HOWEVER, any gains from subsequent property development purchases will be liable to income tax - as the asset was purchased in a business venture capacity for property development, the proceeds being classed as one of your sources of income, and thereby subject to normal income tax rules and regs via SA or annual accounts.

Of course, I shall end with my standard advice, that it always imperative that you personally verify forum advice (esp re tax), directly with a tax advisor, HMRC or another suitably qualified practitioner.

Hope this helps

Holly

thanx holly,one large vodka n coke winging its way to you !,ive noted down all these replys from you good people for future ref,it all adds up,as its all new to us ! just trying to make a good outcome from a very bad situation,it has been hell from feb for us emotionally,light at the end of the tunnel so to speak,to make mum proud of us is worth more than any money could ever buy.