How much tax do I pay if I 'gift' my parents money?

counciltaxbill

My parents have a right to buy the council house they live in (now owned by an association).

How can I 'gift' my parents money to buy this and avoid crushing taxes? How much tax would I pay?

I anticipate this would be about £125k but I'm not sure exactly.

Obviously the idea is that I will inherit the house when they pass away ultimately.

Thanks.

noh

There is no tax on gifts.

Savvy_Sue

There is no tax on gifts, but ...

Who will own the house? If it is your parents, then it will be part of their assets and eventual estate. They can sell it, and its value will be counted within their estate when they die. And they could leave it to the cats home rather than to you. That's what a gift means.

Also should either or both need residential care, then its value will be counted within their assets for calculating what they have to contribute towards this.

If you own but do not live in the house, and your parents do not pay rent to you for it, then when you come to sell the house there will be a Capital Gains Tax liability. Also it will be part of your assets should you ever need to claim means tested benefits, or should you be divorced. And it will be part of your estate if you die before them.

That's a long way of saying take proper advice before you go down this path. What is best for you is not necessarily best for your parents.

somethingcorporate

Do they receive any benefits? these would obviously be impacted by having £125k drop into their bank account.

John_Pierpoint

How long do you have to own a former "council" house before you can sell it, without having to repay the "discount"?

Presumably this a freehold house not a leasehold flat? Beware of maintenance fees if leasehold.

Beware of restrictive covenants put into the ownership deal, in some cases these are blatant methods of milking future tax out of the owner, rather than in the interests of the rest of the estate residents.

Beware of in-exact boundary situations - when the whole estate belonged to one owner it did not really matter that the drains were under next door's garden. [Shared drains became the responsibility of the water company, last autumn]

Check the status of the neighbours - now that there is a massive shortage of social housing, those who do qualify for being housed "by the council" tend to have "issues", other than simple low pay and no capital.

thenudeone

Why don't you lend your parents the money to buy the house instead?

An interest charge roughly equal to the current rent would leave them no better or worse off.

If you were worried about security of the loan, you could get a solicitor to arrange to place a charge on the property (exactly the same way a bank or building society does) which means you would have first call on the proceeds from the house sale.

This avoids any suggestion by the authorities that, having received a large cash gift from you, they have deliberately deprived themselves of the cash (by buying the house) in order to become eligible for any state help or benefits.

holly_hobby

5 yrs ownership under RTB - although the particular council/HA can implement their own criteria.

Son can not be party to the RTB (ie go on the deeds) if he is not a resident of the property.

If son "gifts" the money to pch the property outright, then it does what it says on the tin - its made without any reservation or beneficial ownership of the property.
OR
If the son "loans" the money, say repayable on sale of the property or death (if there are other siblings), then this needs to be formally recorded as such, to take account of any MT assessment, and allocation of assets on death of parents. Any interest he charges parents must be declared to HMRC as recd, whether thats annually or more frequently via annual SA, or if rolled up and entirely payable on parents death, at that point, again via SA.

When parents sell, or son sells the property following inheritance on their death, then he will be exposed to CGT on his share of gain. If its on parents selling up, he doesn't necessarily have to be the legal owner of the asset to be stung, as CGT is actually based on beneficial ownership (although usually they tend to be one and the same) - however if they merely repay him his loan (with or without interest), that is not a CGT chargeable event, although of course any interest paid would be inc in his total annual income, and assesed under IT regs.

If parents qualify and can afford a RTB mge over a affordable and chosen term, they may not actually need the son's gift as a deposit at all, as with RTB lenders, they may utilise the difference between market value and discounted purchase price, in place of a monetary deposit - keeping the son out of the mix.

Lots of issues to consider

Hope this helps

Holly

getmore4less

a loan repayable on death should not have any CGT implications even if secured against the property.

(its no different to a mortgage)

holly_hobby

getmore4less wrote: »

a loan repayable on death should not have any CGT implications even if secured against the property.

(its no different to a mortgage)

Spot on GM4L, and exactly as I noted for them ...... .. which is why it needs to be recorded as such, if it is provided as a repayable advance, and repayable from their estate ....

holly_hobby wrote: »

however if they merely repay him his loan (with or without interest), that is not a CGT chargeable event, although of course any interest paid would be inc in his total annual income, and assesed under IT regs.

Holly

Hope this helps

Holly