Help to understand Capital Gains Tax Please!

Savvy_Sue

I wonder if it's worth approaching one of the debt charities to negotiate with the CC company on your behalf? Stepchange, perhaps? Links on the main site ...

John_Pierpoint

What can I say £1000 a month is enough to live reasonably, as long as maintaining the property and transport costs don't get out of hand.

It is the debt that is the immediate problem.

It might be worth checking on the debt part of this forum to see what the unsecured Credit Cards can do in reality to enforce their debts and how long it would take them.

As others have observed it makes more sense for you to secure a debt against mums house rather than appear to own it and risk CGT liability. In £ terms it is looking like a house price revival is gathering pace. Any chance of borrowing against your own homes rather than mum's - I can see the possibility of family conflict about subsidising a healthy woman of 66.

As you say it would be nice to have 6 months breathing space for every one to take stock of their futures. Has probate or what ever it is called in Scotland been granted? Is it needed? Can you hide behind it not yet being settled.?
The executor's year?

Good luck,

John.

Ps I have corrected it for you:
.....................first time in their lives as [STRIKE]mortgagees[/STRIKE] mortgagors
http://legal-dictionary.thefreedictionary.com/mortgagors

Missingursula2

Thank you for the correction, John

My husband will not agree to secure the debt against our home as it is ours and our children's security, and I won't argue with him about that. Neither of my siblings are in a place to do that, my sister is in negative equity and my brother has moved abroad.

We are still waiting on confirmation (probate) and it looks like that won't be sorted out until mid January (simply because of solicitor's workload and taking account of festive break).

Could I secure the debt in my name against mum's home without owning it? Is that the stupidist question you have ever heard?!

Missingursula2

thanks, Sue - I'll'll check this out.

Cook_County

I cannot understand why your mum feels any legal obligation to pay your father's debts. She inherited the house outside of probate because of the joint tenancy. Anything else only comes to her under his will. If he left other negative assets your mother does not owe his debts.

Have you asked your solicitor to write to the credit card companies and ask them to shove off?

holly_hobby

Right I apologise for length of post now, but there's quite a few topics to try and cover the points at hand ... so here goes.

No, you can't secure a debt in your name against someone else's asset/property.

As this was a joint tenants ownership, mum and dad owned the whole property both severally and jointly, with Dads rights automatically passing to Mum on death, where it becomes her asset.

However despite this under the above arrangement, the creditor may, if there is nothing left from Dads estate to settle the os debt, and within 5 yrs of death, apply for an 'Insolvency Administration Order" under s421a. On the application the court may make an order requiring the surviving partner (MUM) to pay to the trustee (ie for creditor), an amount not exceeding the value lost to the estate (ie his 10k or whatever's agreed), which may ultimately be used to forced sale .... so as you have learned its important to try and mediate with the his os creditors to avoid later issues.

Has the executor/Mum approached the credit card provider to see what they would accept for a full and final settlement or if they are prepared to mediate, re Dads os 10k ?

That should be the first call, to see how much is actually reqd and by when.

Put that to one side, lets look at the advice the "IFA" has given ...

If you/siblings purchase Mums property under a BTL it would need to be a regulated buy to let (as more than 40% of the property will be occupied by family).

As it is regualted lending it will be based on your earned income and commitments (inc any existing mge commitments), with the biggest issue you will have being the fact that all lenders (whom are made aware the vendor is to remain resident post completion), will refuse to lend due to the fact that the Vendors continued occupation post completion, will cause both vacant possession and future possessionary issues for the lender (ie it can prevent the sucessful petition for a possession order from the courts) - which is the reason why lenders refuse to accept this business.

Lets assume however, you do find a lender whom being aware of the true tenancy arrangements, reamins happy to lend.

If Mum sells to you at 100k, there wont' be any Stamp Duty (SDLT), and no CGT on market value of 245k as its her primary residence.

But, if Mums net estate (inc non exempt gifts) on death is likely to exceed available nil rate Inheritance Tax threshold (which may include on application the tsf of Dads unused IHT relief - so could be anywhere up to 650k at todays rates), the sale at undervalue will be treated as a gift with reservation (as Mum has continued to benefit from living there), and the gifted value remain included in her net estate calculation. (your IFA should be able to explain Inheritance Tax (IHT) and Gift with Reservation (GWR) rules.

When the property is later sold, whomever is on the mge/is a beneficial owner will be exposed to CGT, which will be the difference between acquisition and disposal figures, less permitted deductions, reliefs and exemptions - again your IFA should be able to expand on this for you.

If obtaining a regulated BTL is tough, the way round this could be for you to be added to the deeds and become joint owner of the property with mum (transfer of equity) and simultaneoulsy apply for an joint equity release remortgage under both your names (which would deal with the possessionary issues discussed above).

Again, as Mum has little income, your income would need to cover both the mge on Mums house and your own current commitments - and although there are many lenders whom have a top redemption age of a max 75 yrs, this can be circumvented by applying to those lenders whom don't have such a restriction (couple about), and/or those lenders that where Mums income isn't reqd, they will be able to set aside the max term (as determined by mums age), as affordability is being based on the younger applicant (you). Not all lenders will be as flexible, and it will depend upon many factors inc the overall quality of the case.

Again, you'll be exposed on sale to CGT on the value of your share ie 50%, at the time of acquistion, and of course in respect of Mums divided share if you hold under a tenants in common arrangement.

To which you need an experienced whole of market mortgage broker whom wil be familiar with current criteria and regulatory requirements.

Thirdly, lastly and to keep you kids out of the mix, we have the dreaded lifetime equity release option, which at 66 gives her 2 choices, a lifetime mge (where interest is rolled up onto the os balance, although some providers allow payment to ringfence the debt and protect free equity) OR a home reversion scheme (where a % of equity in the property is essentially sold to the provider in exchange for a capital advance).

However, at age 66 and under a lifetime (interest roll up) mge she may be a bit short to the 100k reqd, where she may wish to consider a home reversion plan instead.

Lifetime mortgages are generally repayable on entry into long term care or death (early exit can be costly), and Mum and her adviser should ensure that the arrangement effected has a no negative equity gte built it (which most now do to be fair).

For any lifetime equity release mortgage, you require a specalist qualified and regulated adviser (which not all general mortgage advisers are), so try SOLLA for independently assessed and certified advisers in your area - http://societyoflaterlifeadvisers.co.uk/, and Equity Release Council (prev SHIP) - http://societyoflaterlifeadvisers.co.uk/ , whom offer lots of info and guidance on this area.

So IMHO she has 3 choices if she wants to remain in her current home.

I know this is a long post .... but hopefully I've covered the most salient points, and your IFA and mge broker will expand futher again (otherwise this post would be 10 pages long !).

Hope this helps

Holly xxxx

Missingursula2

Holly- that's amazing - thank you for that full response.

I think that I would prefer the idea of being added to the deeds and applying with mum for a re mortgage to release equity. Perhaps we could get this on interest only for a year until my brother's insurance policy matures or she decides to sell.

In terms of my own commitments (quite minimal) do lenders take account of my husband covering them with me? I realise my own mortgage is joint and that means i am wholly responsible as well. But just wondered if they took account of that!

I understand that many people are suggesting house prices are on the rise, but it takes about 4 years to catch up here, and prices in this area are continuing to stagnate/fall slightly. In this respect, I am now not overly worried about capital gains tax, as it seems unlikely that the house would increase in value over the threshold within 12 months.

IHT will not be an issue. There is nothing like that value - it is only the house.

Thanks again for all of your advice.:T

holly_hobby

You may be able to get a true IO arrangement (ie with no independent repayment vehicle), if you keep the ltv below 50% - again, this is further contracting the pool of lenders who'll look at this, so you may have to re-think this if the only available option (given other paramaters) is on a repayment (ie capital and interest) basis.

Your commitments inc your whole mge amount (as it is a joint and several liability) will be taken into account in the lenders affordability assessment - but with a relatively low ltv, equivilent more generous mulitples may be applied - again lender dependant.

If you have the intention of redeeming within 12 mths, please ensure that if you do obtain a residential mortgage, you only select products (ie discount, tracker, etc), that only have early repayment charges (ERCs), within the first 12 mths OR are completely penalty free, as you don't want to have to either abosorb what could be a hefty charge or wait until its expired (costing you unnecessary mortgage interest, if its higher than any savings account net return the monies could be parked in until you're ERC free).

I would be expecting your mortgage adviser to be discussing all this with you, so please when you attend be honest and truthfull about what you need, want to achive, and the intended early repayment circa 12 mths from completion, Although best laid plans etc ... so also consider what you will do if the mge can't be redeemded at that point due to the ins policy not paying out enough etc, or mum sticking heels in and not wanting to move, etc ... do your homework thoroughly before you land yourself with an additional 100k mge is my advice !

I'm not going down the deprivation of assets route with regrads you going onto the deeds, but just to say if Mum seeks state assisted long term care (certainly within 18 mths of the transfer), then the transfer of equity to you may cause issues in that there is no funding available .... there thats all I'm going to say about that.

I'm glad if I've been of any help, and you can see why its important to discuss your requriments with a suitably qualified and experienced bod ... I suspect the IFA isn't also a mge adviser (there's not many of us about whom wear 2 hats !).

Wish you all well, do let us know how you get on .... Mum will be so relieved when you get this sorted for her, leaving her to adjust to the changes recent events have brought ..... time does makes things easier I promise ... xx

Best wishes ....

Holly xxx

Delphina

I think adding someone other than your legal spouse to your deed may trigger CGT and Stamp duties. I know that even if a husband adds his wife to his house, although there is no CGT to pay, if there is still a mortgage outstanding, they will have to pay Stamp duties.

Her mortgage lender may not let your mum add your name to the deed!

As your siblings are possibly married like you, you should be very careful about getting into any verbal arrangements that involve large sums of money. To be gifted all or part of the house and to have a second home in your name, IHT and CGT respectively may be triggered. Gifting the house back to your mum can also cause IHT if her assets becomes higher than the Nil rate band.

I will just try to put the house on the market and leave that as an option. Downsizing or debt management agreement might be more suitable, as equity release is out of the question for your mum.

holly_hobby

There is no CGT for Mum, on adding Daugher, as the property is her primary residence, so any tsf qualifies for full PRR.

As discussed, SDLT - applies to the purchaser only (daugher), and is based on the actual consideration (ie whats given in exchange for the transfer of equity, which can be hard cash, taking share of a mortgage, or chattels/services). Unless the effected mortgage Daugher is added to exceeds 250k, then they'll be no SDLT, as Daughers effective share (being 1 of 2 owners) will be classed by HMRC as 50% of the balance, and therefore below 125k nil rate band.

CGT has already been discussed for daugher re later sale of the property, as her period of ownership won't qualify for full PRR exemptions (but may have some if she does live in the unit at any point during her beneficial ownership period).

Hoping the OP & Mum as recommended, obtains her own independent professional tax advice on this, as mis-understandings or mis-advice acted upon could be v costly .

Hope this helps

Holly x