tax/hurdles on buying mums house cheaply?

Mily.Moon.Lei

Howdy,

My mum has bought a new house -cash- with my step dad and has offered us (my husband and I) her "old" house at discounted rate. We are first time buyers and have a deposit (22k) and can get a mortgage for the £130 she is asking for her (value of) £200k house.

What I'd like to know is: what kind of tax do we have to pay on this gift, if any?

IE capital gains tax? or inheritance tax?

I'm 28 and my mum is 52 and I have one brother - he will receive a similar amount of money when he buys his first house when ever that maybe. Does age account with inheritance tax? do house gifts count?

I can't seem to find much relevance in my research so appreciate any info

HappyMJ

The house is worth what you pay for it or if the valuation is lower then that figure will be used. You cannot borrow against the full value of the property for at least the first year of ownership when you can re-mortgage onto a much better deal.

If you live in it there is no CGT or IHT to pay. It's not a gift she's put a price tag on her property and you have made an offer and come to a deal.

Mily.Moon.Lei

Thanks - that's brilliant advice, just perfect and a real load of my mind

Now just to sort the mortgage and get her to move out! she bought her new house 6 weeks ago and has only packed a couple of boxes lol

I think she is reluctant as she has lived there 20years and I will be changing almost everything to try and put our stamp on it. Otherwise it will always be HER house no matter who owns it!

TrickyDicky101

HappyMJ wrote: »

The house is worth what you pay for it or if the valuation is lower then that figure will be used.

This is not an arms length transaction for tax purposes so this doesn't apply in the eyes of HMRC.

Your mother will effectively be gifting you a substantial deposit - you need to ensure (eg via your broker) that whatever lender you use is happy to accept vendor gifted deposits (which they should be as it is from a close relative).

It's not a gift she's put a price tag on her property and you have made an offer and come to a deal.

This is wrong - it IS a gift, the transaction is not arms length. Assuming it was the primary residence of your mother then she is unlikely to have any CGT to pay on the deemed disposal proceeds (which will be set at the market value of the property).

IHT won't be applicable if your mother survives at least 7 years after the gift and certainly woin't be unless the value of her estate exceeds the nil rate band (which is in excess of £300k currently).

Deprivation of assets rules may come into play if your mother tries to claim benefits in the future but if she is in good health at the moment - and her young age - hopefully makes this unlikely.

You will have SDLT to pay on the transaction value (whatever you buy the house for - which sounds like 1% of £130k) unless it falls below £125k.

holly_hobby

HappyMJ wrote: »

The house is worth what you pay for it or if the valuation is lower then that figure will be used. You cannot borrow against the full value of the property for at least the first year of ownership when you can re-mortgage onto a much better deal.

If you live in it there is no CGT or IHT to pay. It's not a gift she's put a price tag on her property and you have made an offer and come to a deal.

No this isn't correct.

The mge can be based on the 200k market value for mortgage purposes ie 130/200, with the diference effectively acting as the deposit, and meaning that the OP does not need to utilise their 22k if they dont' wish to. This is referred to as a family discounted or concessionary purchase, and whilst not all lenders work on this remit, several high st lenders do, and have done for many yrs.

With regards IHT - the amount of the "gift" is essentially the difference between mkt value and pch price, and considered a PET re IHT. This gift will be excluded from the Donor's estate IF they survive for 7 yrs post donation, and also don't retain or receive any further benefit from the property or the monetary amount (which will impeed PET exemption) . This will all only be relevant IF the Donor's net estate (inc none exempt gifts) on death in the 7 yr period, exceeds nil rate IHT (currently 325k per person), if it doesn't exceed their applicable nil rate band or they don't die within the watershed period - then no PET/IHT issues to administer.

SDLT - is based on the actual consideration (ie actual money, goods and/or services exchanged for the asset) - so in this case if they pay Mum 130k, regardless of what the property is worth, then they will pay 1% on 130k (nil if the agreed pch price/consideration is below 125k).

CGT on the other hand IS based on the market value (as this is not an "at arms length" transaction. HOWEVER, as noted above, if Mum has full PRR then CGT doesn't come into play - so nothing to calculate.

Hope this helps

Holly

Mily.Moon.Lei

thanks for your input everyone, i've been thoroughly researching now understand much more and now have some things to consider in the future regards to this house.


Holly,
Thank you very much - this is very useful to know! a 1/3 of our deposit is currently tied up so would be easier to use and will take into consideration when applying for our mortagage (prob with HSBC as we are already customers).

holly_hobby wrote: »

The mge can be based on the 200k market value for mortgage purposes ie 130/200, with the diference effectively acting as the deposit, and meaning that the OP does not need to utilise their 22k if they dont' wish to. This is referred to as a family discounted or concessionary purchase, and whilst not all lenders work on this remit, several high st lenders do, and have done for many yrs.

Mojisola

Mily.Moon.Lei wrote: »

I'm 28 and my mum is 52 and I have one brother - he will receive a similar amount of money when he buys his first house when ever that maybe.

I hope your mother has somehow ring-fenced this money for him - if your mother dies before he buys his house and you end up with having had this financial gift and then equal shares as beneficiaries, he could be very upset. Family feuds have started over much smaller amounts!

holly_hobby

Not sure if HSBC will work on a concessionary pch arrangement, as they are direct business only - but there are several high st lenders that do.

In this arranement the mortgage applcation shows the pch price as the market value ie 200k, and the mge reqd as the agreed pch price ie 130k.

Hope this helps

Holly