Help please!! Buying from parent

pretzel

Hi

I am looking for a bit of advise.

My mother is selling a buy to let property and as it has not sold on the open market has agreed to sell it to my partner and I at a heavily reduced price.

We will run the property on a BTL basis.

My query is.... The valuation of the property is £150k and they will sell to us for £80k ( great deal for us). Anyway I was looking to take out a buy to let mortgage and need to know whether I will need to pay a deposit or will the deposit be covered by the valuation of the property?

Hope that makes sense and hope someone can help out in this

monty-doggy

Do you already own or have a mortgage on a house that you live in?

Normally it's 25% deposit for btl properties.

There may be tax implications too. I'm sure so done else will be along to advise soon.

holly_hobby

Not all BTL lenders will proceed on a family discounted pch arrangement - which means that you'll still need 25% deposit off the actual price, and if you're first time buyers you'll struggle to find a lender in any event.

Mum will still be exposed to CGT, as this is a connected sale at undervalue, the CGT will be based on the market value -v- actual pch price she paid (less available reliefs, allowances, exemptions).

The effective discount is also a potentially exempt transfer (PET) for IHT purposes, essentially relevant if Mums passes within 7 yrs of the transfer and her net estate is likely to exceed the nil rate threshold (325k pp or upto 650k if there is any unused deceased spouse nil rate exemption available for transfer).

The sale at under value may also be cited by the local authority/DWP as deprivation of assets (subject to certain assumptions).

Whilst SDLT will be based on the actual pch price you pay, regardless of the market value.

My advice would be to engage an experienced mortgage broker, because whilst BTL mges are mostly intermediary only, you will also need their guidance regarding the family/concessionary pch price you also wish to utilise.

Hope this helps

Holly

pretzel

monty-doggy wrote: »

Do you already own or have a mortgage on a house that you live in?

Normally it's 25% deposit for btl properties.

There may be tax implications too. I'm sure so done else will be along to advise soon.

Hi yes we have a home which we own outright ( value approx £250k) and also a BTL property which is owned outright...

pretzel

monty-doggy wrote: »

Do you already own or have a mortgage on a house that you live in?

Normally it's 25% deposit for btl properties.

There may be tax implications too. I'm sure so done else will be along to advise soon.

holly_hobby wrote: »

Not all BTL lenders will proceed on a family discounted pch arrangement - which means that you'll still need 25% off the actual price, and if you're first time buyers you'll struggle to find a lender in any event.

Mum will still be exposed to CGT, as this is a connected sale at undervalue, the CGT will be based on the market value -v- actual pch price (less available reliefs, allowances, exemptions).

The effective discount is also a potentially exempt transfer (PET) for IHT purposes, essentially relevant if Mums passes within 7 yrs of the transfer and her net estate is likely to exceed the nil rate threshold (325k pp or upto 650k if there is any unused deceased spouse nil rate exemption available for transfer).

The sale at under value may also be cited by the local authority/DWP as deprivation of assets (subject to certain assumptions).

Whilst SDLT will be based on the actual pch price, regardless of the market value.

My advice would be to engage an experienced mortgage broker, because whilst BTL mges are mostly intermediary only, you will also need their guidance regarding the family/concessionary pch price you also wish to utilise.

Hope this helps

Holly

Thanks holly for all your information. I have a home and also. BTL property are owned outright.

I spoke to a mortgage broker this afternoon to see if it would be possible to get a lender that would take equity in the property value as a deposit. He is looking in to for me and coming back tomorrow... The other option would be to purchase the property at £100k and my mother would give me the £20k back as a deposit ( along with some of my own money)... Feasible?

I understand the implications re CGT and IHT. Can you explain what you mean though by CGT will be based on market value v actual purchase price? ... Will she be liable for the whole amount of £150k?... Surely as the property has not sold at that and probably will achieve less in the open market the CGT liability would be based on a lower amount ( though don't know what this would be???)

Also one last thing, can I ask what SDLT stands for?

Thanks for your time... Very informative!

Pretzel

holly_hobby

SDLT = stamp duty land tax (or stamp duty)

CGT - this will be the difference between the pch price Mum paid and the market value (ie 150k) at time of transfer/disposal to you. This is because you are connected to her, and that if you weren't she would sell it to an unrelated 3rd party, for the true achieveable value of 150k.

However, she may apply to any gain reliefs, such as her annual unused CGT allowance £10900 2013/14 tax yr, improvement costs associated pch and selling fees. If mum resided in the property pre letting, she'll also be eligible for lettings relief which is 40k, so if she did reside in it, she'd be looking at a gain in exceess of 50k+ before any actual cgt tax would be due.

The 20k cashback should be declared to the lender, and wouldn't be accepted by them in my experience (there may be ways to circumvent this that your broker may discuss on a one to one with you).

Mum needs to report the sale and net gain via annual self assessment (property pages).

Hope this helps

Holly

GMS

Could you raise the funds on your unencumbered BTL and use the proceeds to purchase your Mums property for cash?

pretzel

GMS wrote: »

Could you raise the funds on your unencumbered BTL and use the proceeds to purchase your Mums property for cash?

Yes I could do that... You mean take a new BTL mortgage out on the existing BTL property?... Would this be a better option?

holly_hobby

It would solve the concessionary pch issues, even if you just released enough to meet the reqd deposit.

The associated mge interest in rspect of the released equity, is also fully tax deductable from rental reciepts, as its classed by HMRC as capital withdrawal (as long as what you release doesn't exceed the original pch price as a BTL, or its value when it became part of the business ie available for let).

Your broker and accountant will guide.

Hope this helps

Holly x

GMS

pretzel wrote: »

Yes I could do that... You mean take a new BTL mortgage out on the existing BTL property?... Would this be a better option?

It would open up plenty more option sin terms of products and lenders and you could look to refinance the newly purchased property in the future if you chose to.

What is the current BTL worth? How much rent per month?

pretzel

Current BTL worth approx £160k and rent is £630 per calendar month....