Stamp Duty - Parents House

Mojisola

Where will your MIL live? She won't get help with rent if she has given away a house/200k.

GDB2222

niallmacmillan wrote: »

Yes looking online at Right move and for sold House Prices it is more £250k they are selling for.

This would mean the sister and ourselves would get less equity as the house is being split evenly and there is 70k outstanding on it.

I'm a bit lost. How does paying more give you more equity?

Yorkie1

GDB2222 wrote: »

I'm a bit lost. How does paying more give you more equity?

I think OP means it's properly valued at more (rather than paying more) - so the £170K mortgage is a lower LTV of the market value.

GDB2222

Okay, let's start again. Stamp Duty is payable on the price actually paid. So, if it's valued at £270k, but mother agrees to sell for £250k, stamp duty is payable on £250k. LTV is based on actual value, although often lenders take the price paid as an indication.

I don't see how paying mother £270k, rather than £250k, improves the LTV.

A lot of muddled thinking here, and I'm hoping it's not me!

InMyDreams

If OP is only planning to actually hand over £170K for the house (with the rest of the equity being a gift) then stamp duty is only payable on the £170K anyway at 1%.

It's also irrelevant what *you* value the property at. The mortgage provider will independently value the property. You can use that value in your calculations.

The only real issue I can see is the deprivation of assets one. And also look closely at the inheritance thing. Google 'reservation of benefit'.

Edit: GDB2222 got there first

Yorkie1

GDB2222 wrote: »

Okay, let's start again. Stamp Duty is payable on the price actually paid. So, if it's valued at £270k, but mother agrees to sell for £250k, stamp duty is payable on £250k. LTV is based on actual value, although often lenders take the price paid as an indication.

I don't see how paying mother £270k, rather than £250k, improves the LTV.

A lot of muddled thinking here, and I'm hoping it's not me!

InMyDreams wrote: »

If OP is only planning to actually hand over £170K for the house (with the rest of the equity being a gift) then stamp duty is only payable on the £170K anyway at 1%.

It's also irrelevant what *you* value the property at. The mortgage provider will independently value the property. You can use that value in your calculations.

I am probably muddled here, but as I understand it, the OP is saying that the market value of the house is £250K or perhaps £270K.

She proposes to buy it for £170K, but £100K of that money is actually so that mother can then give sister the £100K by way of early inheritance.

The remainder of the value of the house is a gifted deposit - i.e. the 'equity' referred to earlier. Otherwise it would be a 100% mortgage - house valued only at the price of the mortgage.

If the true market value of the house is £250K, then there is £80K gifted deposit and the mortgage is for 68% LTV; if it is £270K then there is £100K gifted deposit and the mortgage is for 63% LTV.

Stamp duty is usually paid on the market value of the house. Is it different when there is a vendor gifted deposit in a family situation?

Flugelhorn

Where is MIL going to Live?

niallmacmillan

This is where I confuse things even more.

The MIL has bought another property that she is living in, the family home that she will sell to us has 70k outstanding on it because the MIL withdraw this equity to buy the new property.

The sister who will receive 100k inheritance currently lives in the family home and is paying rent to the MIL, the rent money is paying for the 70k equity the MIL took out for her new property.

The sister doesn't want to buy the house and would like to get on the property ladder so will use the 100k inheritance as a deposit.

So we will get a 170k mortgage to buy out the sister and MIL.

This will then clear the MIL of 70k and give the 100k inheritance to the sister. The equity left in the property will be used as our deposit to buy it.

I will congratulate anyone who is keeping up with this!!:T

niallmacmillan

oh dear - more implications because you didn't explain that to start with

1. MIL does not live there so if she moved out more than 36 months ago she is now liable for Capital gains tax when she sells it. Because you and she are related ("connected persons") the value used for CGT purposes must, by law, be the full open market value, it cannot be the discounted value you actually pay her. So she will have a sale price for 250 - 300k depending on its agreed market value - normally need 3 valuations to get the average for this

2. let us hope MIL has been declaring the rent received for Income Tax purposes otherwise when it sells she may get a nasty shock as HMRC is notified of every property sale in the UK and may copme looking for back tax

3. SDLT is based on "chargeable consideration" given - in your case SDLT consideration is the cash actually paid ie 170K - any equity gifted to you by MIL is ignored for SDLT purposes

4. MIL receives 170k of which she gives 100K to sister. This will be a partially exempt tansfer for IHt purposes so she needs to live for 7 years for this to be fully outside her liability for IHT (if she has any to start with)
others have explained the implication of the 100K and the gifted equioty in rsspect of deprivation of assets

5 MIL continues to live elsewhere so the gifter equity is not relevant for IHT as there is no reservation involved since she no longer uses the asset

other than the above your plan is fine

1. 15 months ago that the MIL moved out of the property

2. She hasn't been gaining any profit out this so doesn't need to declare this. The idea was to sell it eventually and she seeked professional help when buying a new property.

3. So does this mean that the stamp duty would be charged at the 170k purchase even though the house is valued at 250k+?

mjdh1957

niallmacmillan wrote: »

2. She hasn't been gaining any profit out this so doesn't need to declare this.

You have to declare income to the Revenue whether there is profit or not. Income less allowable expenses is taxable and they need to know about it.