Mortgage conundrum... trying to help my dad!!!

Dave_Ham

Just to add my 2p back in; I do not think the valuer/lender will be happy with a purchase price so much lower.

I think they inevitably raise more than an eye brow and when they go digging, I think they will like it even less.

As I said, I think it is going to be a compromise...

GreyMan

Holly,

That definitely clears up the CGT element - apologies for the poor terminology throughout; whenever I talk of my 'dad selling the property', etc, it's because I only see myself as taking on the mortgage on his behalf and in fact as it's his money (morally, if not legally) then he can call the shots on it and I will act on his wishes.

I've just re-read my emails to/from my accountant and she differs in her opinion about a purchase at £75k - to quote her "Although you and your dad's partner are not connected for CGT purposes, this transaction is not a bargain at arm's length. Consequently, the disposal is deemed to be for a consideration equal to market value, i.e. £175k. Therefore, if you actually pay £75k, your dad's partner is treated as gifting you the remaining £100k." This may not impact me directly, but according to my accountant this then creates a CGT liability to my dad's partner - which 'my dad' (read - me) will then have to cover from his savings, as she doesn't have any money and wouldn't be prepared to pay her own way in this matter (quite rightly, you may argue).

My head is starting to hurt again!!!

GreyMan

Dave - noted. Thanks again.

holly_hobby

I don't think the valuer/lender would have an issue - as in essence they have say 60k exposure (using 80% ltv as a ballpark) on a 175k open market property - they also don't act for HMRC.

And as long, as there are no future bankruptcy petitions on the partner (the sale at 75 instead of 175 could be cited as deprevation of assets by the TIB), or any other consideration given in exchange for the property I can't see there legally being an issue from their criteria point of view.

BUT - there may be an issue with HMRC and the partner re CGT and a perceived loss on sale.

You need to check this out with a suitably qualified tax practitioner and your sol - as my comments on the forum may only be for considered as general comments in general conversation.

Hope this helps

Holly

PS - just read your post OP - where cgt and partner has been discussed by an adviser (tax ?) - dont' forget CGT is only applied TO A GAIN (realised or mkt value) compared to the original acquistion price LESS her annual CGT allowance and other permitted cost deductions etc x 18 or 28 %.

And she will ALWAYS be exposed to CGT bill if she actually sells at 175k or lower to you or anyone else, as this is not her primary residence (nor has it ever been so she does not qualify for PRR) and the CGT liability will not change.

The way to mitigate the CGT on her disposal may be to go the long way via joint tenant route (subject to her mge lenders approval or a suitable remortgage), although again there is possible tax exposures again in respect of transferral of mge debt and CGT and other exposures as part of the exercise .... let me have a little ponder on that (just got back from shopping so this is just a quick pop in, I'll come back to it after a sit down think when I've go 2 mins).

Dave_Ham

Take your point Holly, but I do not mean from a criteria or legal perspective; I mean totally from an underwriters/lenders point of view.

The valuer is likely to make reference to the market value vs purchase price and depending upon lender, they are likely to make an issue of it.

Simon_gloster

Holly,

Numero uno posto, lush. X

holly_hobby

Yes Dave I agree - but the important point I am considering is that he is actually purchasing at 75k and would be using that figure as the gross pch price (not the estimated175k market value), which from the lenders point of view its what important - as 75k is the fig that the mge app and the resulting min (or otherwise) deposit will be based on in the UW process. But I am happy to be corrected if one of the valuers Simon G is one, and bobsyourteapots is another - have any experience/comments to the contrary.

Re any cited sale at undervalue for OP - SDLT is based on consideration so the 75k I believe would be the noted pch price, as again it isn't a sale at undervalue, e.g - mge app and conveyencing will note a property value/sale price as 175k but a mge only reqd of say 75k - using the balance as an effective deposit.

Re - sale at undervalue for partner - well there is insolvency issues re the application of s423 by the TIB - which (in relation to indviduals) is to do with proving a deliberate deprevation of assets for creditors. As long as there is no known liquidity issues, and an obvious and documented explanation of the reason for sale at under apparent market value (which in this there is - you simply document the original arrangement and everyone signs), it would be difficult for the TIB to upset the transaction - indeed we know it is absolutely truthful to say that this exercise is nothing to do with the partners attempted deprevation of assets in any shape or form.

Re - CGT - yes she is wholly exposed to any value increase between the pch price and the market value at point of sale - which is why I said in my initial post that I couldn't beleive the Sol/mge adviser didn't discuss any of the resulting ownership implications and tax exposures (if they were aware of course !) that the exercise would raise ( apart that is from Dad getting a mged property via A.N Other, due to his poor credit history preventing him from sourcing his own mge - which to be fair was a complete manipulation of the system, which he may end up paying (at the very least cash wise) dearly for ... but what's done is done (and I say that not passing judgement in any shape of form).

So, back to the plot .... to be clear and as we stand, Dads partner is exposed to CGT on the difference between the acquistion price and todays market value (less permitted deductions and annual unused CGT relief).

So before we start talking TOEs etc, lets look at what her exposure is as we stand .... you mention Dad gave her 100k in cash, further to which she got a mge for 75k, that tots up to a pch price of 175k, which is the same fig you are quoting as todays market value of hte propery ... is that correct ? (i.e - the property has not increased in value since its date of purchase circa 7 yrs ago ?

Have I understood the figs correctly ?

If not, could you give a breakdown of actual pch price, and todays market value (or a good guess if this hasn't been indepently assessed for marketing purposes).

Hope this helps

Holly

Dave_Ham

I had a client last year who was refused directly, based upon this exact situation..

He was trying to re-balance some money he owed the buyer, incidentally it was £100k on a £200k property, resetting the £100k.

Valuer put comment on valuation saying that this was a sale at significantly under value and "slightly concerned about it being in a sought after area"

Lender asked for rationale and did not like it. Whilst not the same situation as OP, not a million miles away...

This was a selective direct lender application, but you can see why I mention.

As I said, loads of hurdles but OP seems to have a fair handle on things...

And West Ham have just equalised - come on....

holly_hobby

Yep Dave, I can well see the lender may be a bit jittery on a situ such as this, but I think their take (and possibly in your Clients, as this was to do with settlement of a somewhat huge debt) is in relation to any future insolvency of the Vendor (as if its a sale at under value for deprevation, the TIB can treat it as never having happened, and thereby force the new owners disposal of the property - which obv compromises the lenders position).

I mean if we are looking at exposure/ltv - then their interests would be more than covered - but the jitterness over s423 (which is not timebound if intention is proven, otherwise its 5 yr clawback for individuals) will want to make them refuse to lend - just as never say never approach I guess.

Maybe the OP or their broker will discuss and lay their cards down fully with their chosen lender to see what transpires .... this WILL be an interesting one !!

Can't wait to find out what happens ...... by the way, I've never had this happen to me, or been involved in any placement for any brokers where this has been the situ ..... so my comments re the mge itself are based on nothing more than a common sense approach, but we all know that lenders are funny old things and sometimes can't see round corners .... !!!

H

holly_hobby

Dave_Ham wrote: »

And West Ham have just equalised - come on....

Ah .. the name should have told me .... up the hammers !!

My hubby is a Liverpool supporter .... so not too happy at the mo !!

H x