buying a house from my father

thomasabrooks

hi everyone,

i am currently renting my deceased grandmother's house which my father has owned outright since 1990 (he inherited it from his dad).
after my grandmother died my dad had it valued at 120,000.
This is not his place of residence.
he decided he would like to keep it in the family and so offered it to me to rent for a period of five years with a view to buying once i have enough of a deposit for mortgage.
recently he suggested a way to speed the process up would be for him to take out a bridging loan ( say 20% of house value)and offering that to me, enabling me to secure a deposit and get a mortgage providing i were to cover the interest of bridging loan.

A. is this legal?
B. if so are there any tax implications?
C. anything else to look out for?

cheers

GMS

If you were to buy from your father you could allow him to gift equity as a deposit.

If your father wants full market value for it then you will not be able to get a bridging loan for the deposit as this would need to be paid back as part of the sale meaning your father would get 80% of the purchase price less costs.

Easier to do a sale at undervalue to you.

thomasabrooks

thanks for quick reply more info: house was valued before i moved in since then central heating house has been plastered carpeted, basically totally modernised (as it basically hadn't been touched since 70's) i financed these improvements and hope they have added market value because we agreed that i would pay at previous value.
i am also due to inherit certain % after sale so would it be better to effectively have my inheritance % as a discount on sale?

holly_hobby

Yep, if this is purchased under value via a family/preferred sale, the lender will base the LTV calcs on market value -v- mge reqd - and as long as the difference is at least equal to their minimum deposit reqd, you won't have to put down any additional funds to fund the deposit.

With regards to your Father, he will be liable to Capital Gains Tax on the difference between the market value (sale price) and the value of the propery when he inherited it, less improvement costs (which is somewhat of a grey area with this case, as you say you personally funded the renovation/improvements).

Any gain realised on sale by Dad, will be liable to CGT however this may be offset by his unused annual personal CGT allowance which is currently £10,600 for 2012/13 tax yr - and declared via annual return. (NB - he doesn't qualify for any further reliefs you may see discussed on the board, such as lettings relief, or Primary Residence Relief - as this has never been his primary residence since ownership).

Hope this helps

Holly

thomasabrooks

ok then, i will talk to him about equity gift idea, get house revalued
and see what % deposit i can lay down with it.
thanks

Thrugelmir

holly_hobby wrote: »

With regards to your Father, he will be liable to Capital Gains Tax on the difference between the market value (sale price) and the value of the propery when he inherited it,

There could be a differential between selling price and market value.

Tax will be assessed on actual market value not monetary consideration if lower.

holly_hobby

Yes T. market value being gross sale price, less any proven improvement costs as I've stated.

thomasabrooks

so if i understand, is this example correct:

house is revalued at 140,000

dad sells me house for 110,000

i have an instant 30,000 deposit

my dad will incur capital gains tax bill on difference between 140k and value in 1990, minus renovation costs 18 k (do costs have to be proven to some extent?) and cgt allowance 10k
if correct this seems promising, as i know he is keen to sell as he and other family members will probably want their stake before i could manage to save for a deposit myself

samtoby

I am sure I have read on here some mortgage companies do not like gifted deposits so I would make sure you go to an independant mortgage advisor than go direct to a bank. At least you will be given the best options available in your situation. I hope it all works out for you!

GMS

samtoby wrote: »

I am sure I have read on here some mortgage companies do not like gifted deposits so I would make sure you go to an independant mortgage advisor than go direct to a bank. At least you will be given the best options available in your situation. I hope it all works out for you!

If the deposit is gifted from a family member then generally ok. If gifted from a non related vendor then not possible.

thomasabrooks

GMS wrote: »

If the deposit is gifted from a family member then generally ok. If gifted from a non related vendor then not possible.

yes i assume gift in writing from father usually ok then, so plan is
talk to financial/mortgage advisor, get house valued, see if i can get 'on the ladder':)