Buying home from parents

Bythelightofthesilverymoo

Hello,

I would appreciate some advice. I am thinking of buying my parents' second home from them for the market value, using a 90% mortgage to purchase the house. My parents will have no interest in the house once sold (they have their own family home which they have lived in for over 20 years), but they have offered to lend me some cash from the sale to make some improvements on the property. Are there any rules against this?

I would be grateful for any thoughts on this.

NB: My parents will be giving all of their children a lump sum upon sale of the property, regardless of who purchases it.

Tixy

Presume you already have a deposit saved up not related to this loan from them?

There are no rules against them lending you money to make property improvements as a separate transaction.

Is it, in fact, a loan that you will repay? or will it be a gift (since you mention all their children being given a lump sum?) If its a gift or if they are giving away gifts they will need to consider the potential inheritance tax position.

If they happen to be gifting / loaning all the proceeds presumably they have already considered any capital gains tax liability they will have in relation to the property sale?

Bythelightofthesilverymoo

Hey Tixy,

Thank you for the response. Yes, the deposit is separate from the money my parents are offering.

Yes, some of the money will be given as a gift (all children receiving the same amount) and part of it will be a loan.

I hadn't even thought about CGT, but I'm sure they have. They originally bought the house in the 1980s, so I imagine that's going to be quite a hefty CGT liability. :eek:

Bythelightofthesilverymoo

Tixy,

Silly question, but is inflation taken into consideration when calculating CGT? I mean, the pound in your pocket in the 1980s was obviously worth more. Seems quite unfair that they'd have to pay up to 28% on any increase in price since the 1980s.

I need to know more about this beast...

kidmugsy

Bythelightofthesilverymoo wrote: »

Tixy,

Silly question, but is inflation taken into consideration when calculating CGT? I mean, the pound in your pocket in the 1980s was obviously worth more. Seems quite unfair that they'd have to pay up to 28% on any increase in price since the 1980s.

CGT calculations used to be index-linked but a Chancellor of the Exchequer (Brown I assume) swept that away. You now pay tax on fictional gains that are in truth mere inflation.

Bythelightofthesilverymoo

OK, initial research suggests that it doesn't matter how long you have owned the property, you are taxed at the 18% or 28% rate regardless.

I think it's time to consult Which? article for keeping CGT as low as possible (not allowed to post link as new to site).

Thanks for throwing that into the mix, Tixy. I have learnt something this evening...

Bythelightofthesilverymoo

Thanks, kidmugsy. Yes, it seems a bit much to have to pay 18-28% on, as you say, fictitious gains. It's quite galling actually.

00ec25

Bythelightofthesilverymoo wrote: »

Thanks, kidmugsy. Yes, it seems a bit much to have to pay 18-28% on, as you say, fictitious gains. It's quite galling actually.

debate house price inflation - if they were selling in the open market, rather than selling to their child, they would quite happily accept the inflated price the property is now "worth" and may grumble at having to lose 28% to CGT but will remember that when inflation (ie indexation) was built into CGT calculation the actual tax rate was 40% not 18 or 28%. Swings and roundabouts...

note that for CGT purposes if they purchased it before March 1982 then the original price is now capped at the (notional) March 1982 value. If bought after that date then their cost price is what they actually paid...

Bythelightofthesilverymoo

No, we're paying the market price. We're not talking big sums here (compared to average house price). So, yes, I think they do have reason to grumble. However, I see your point in a more general sense.

Plus, CGT is based on market price anyhow. At least that's my understanding... but I am far from an expert! :rotfl: