Tax Advice

ryoden

Hi,

My wife and I started out by trying to help her parents buy a bungalow, we were just going to lend them the amount for the excess they needed after selling theirs. However the original buy fell through and they have ended up getting a much more expensive house.

They suggested they gift us their house (parent to child - legal as far as I am aware and you only pay inheritance tax on it if they die within 7 years of the gift) and we would take out a mortgage on our house to make up the shortfall, which saves them looking for a buyer for their house and we get their old property, which saves on conveyancing fees.

My concern is that should we be paying stamp duty on the giftted house and if so would if be based on the amount we are lending them which is less than the valuation of their house or the current market value?

anselld

confused!
What are they gifting you, their new house, their old house, both?
What are you mortgaging?

Stamp duty is not payable on genuine gifts, but if other "consideration" changes hands, eg by way of exchanged property then yes, stamp duty is payable at the full value of the consideration (not market value).

G_M

Don't forget Capital Gains Tax if the house is in your name but is not your primary residence.

And if it is in your name but they live there, potential landlord/tenant implications.

ryoden

anselld wrote: »

confused!
What are they gifting you, their new house, their old house, both?
What are you mortgaging?

Stamp duty is not payable on genuine gifts, but if other "consideration" changes hands, eg by way of exchanged property then yes, stamp duty is payable at the full value of the consideration (not market value).

We are lending them the money to buy the bungalow (their new primary residence), as they didnt have enough saved to buy it outright by themselves without selling their current house and didnt want to go through the hassle of seeling and buying at the same time as they are quite elderly and didnt want the stress. They are gifting their current primary residence to my wife to save money on possible inheritance tax when that occurs. I understand that if we were giving them the money then it could be viewed as a swap and STD is payable but I assume if its a loan for another property that will be paid back over time then it's not?

ryoden

G_M wrote: »

Don't forget Capital Gains Tax if the house is in your name but is not your primary residence.

And if it is in your name but they live there, potential landlord/tenant implications.

We wont be selling the house after they gift it so I dont think capital gains will be an issue yet.

Annisele

Depending on the amounts involved, it seems a little mean that you're *lending* them money at the same time they're *giving* you a house - but I appreciate there may be IHT benefits to doing it that way.

I think you should be taking proper paid-for professional advice on this one. There are many potential pitfalls - including tax and deprivation of assets - and ideally I think you want to rely the advice of a person you can sue if it all goes wrong.

xylophone

You need expert advice.

G_M

ryoden wrote: »

We wont be selling the house after they gift it so I dont think capital gains will be an issue yet.

You asked for tax advice.

The longer you keep the property before selling, the more likely there will be a capital gain, and hence a tax liability!

Thrugelmir

Annisele wrote: »

Depending on the amounts involved, it seems a little mean that you're *lending* them money at the same time they're *giving* you a house - but I appreciate there may be IHT benefits to doing it that way.

I think you should be taking proper paid-for professional advice on this one. There are many potential pitfalls - including tax and deprivation of assets - and ideally I think you want to rely the advice of a person you can sue if it all goes wrong.

The transactions needs to be properly documented. As on the face of it could be considered "artificial". The gift and loan may well be deemed to be connected.

ryoden

Ok cheers all, I am getting the solicitor to look it over next week but wanted an idea of if it was worth pursuing.