Gifting a House - Truths

Currents

Hi all,

I know this has been discussed before, but nothing seems to address my specific circumstances and I wanted to call on the clever brains here to help me understand the full picture.

My father has a house valued at 300k.

He's selling it to me and my partner at the discounted price of 200k.

He's moving back in with my mother in another house (long story).

I'm paying 20k in deposit, then 180k of mortgage.

Does this discount/gift have implications that I need to be aware of? I've noticed a 350k house valuation as the point at which Capital Gain might kick-in - is this at the point of purchase? Or sale? And on what amount would that be?

Also, are we liable for inheritance tax later down the line? Even though it's under the 350k mark? Or is this if he were to pass away before 7 years is up only?

Any help much appreciated. It's a tricky issue to understand.

holly_hobby

If this is/has been Dads primary residence and has been so since purchase (in fact even if he has not lived there for the last 36mths), there is no CGT liability, as he qualifies for full primary residency relief on the total amount of any gain.

From a stamp duty (SDLT) point of view, this will be based on the actual pch price (ie consideration ), which is £200k @ 1 % - and your liability.

The sale at under value (100k) is essentially a Potentially Exempt Gift (PET) for Inheritance Tax (IHT) purposes, which means that if he dies within 7 yrs of making the tsf, its value will still be included within the valuation of his net estate, which if it exceeds 325k (at current IHT rates, or anything up to 650k if there is any unused spousal nil rate IHT exemption that can applied for tsf by his executors), there will be liability for his estate.

The gift may affect any application for state funded long term care, under deprivation of assets - I say may as the local authority would have to prove his anticipated knowledge of making any such claim at the time of the gift, and just mentioned here for thoroughness.

Instead of just taking your 20k off the 200k pch price and looking for 90% lending, I would personally seek a lender whom is happy to use the gifted equity (under a family discounted/concessionary pch arrangement), to get your LTV right down, and at well under 70% (even if you don't include your 20k) afford you the choice of much lower payrates - there are several lenders whom will accomdate this, your broker will be aware of whom they are and which are currently offering the most attractive packages/products - but of course the above is all subject to what the lenders surveyor values the property (for mortgage purposes) at, which can often differ to the marketing price provided by an estate agent.

So your next step is to engage a whole of market mortgage broker to set the wheels in motion.

Give a shout if you need anything else

Hope this helps

Holly xx

Currents

Hi

Thanks so much for this detailed answer.

I do have a couple more questions ...

What is tsf? And ltv?

With the inheritance tax, is it me or him that is liable for it? And what is the rate?

With the inheritance tax, if it is me, will they expect me to pay it in a lump sum straight away? Ie do I need to start saving money with that in mind, considering most of his savings will have come to me in this gift?

Thanks so much

troubleinparadise

Here's a link as to who pays Inheritance Tax:

http://www.hmrc.gov.uk/inheritancetax/paying-iht/who-pays.htm

This is the same answer as in your other thread to the same question re inheritance tax and who is liable - the HMRC website gives lots of information about this and explains it all in greater depth.

CLAPTON

what exactly is the situation with your mother and father?

in general a married couple can have only one primary personal residence at a time, so if both have a property then depending upon the circumstances, your father may be liable for capital gains tax.

Let_Us_See

Transfer and Loan To Value.

Holly is spot on with her advice, and any potential liability of the transfer can be covered by arranging a simple life policy (father insured life).

Currents

Hi Let us see and Holly,

So Loan to Value would save me money how? Apologies, I can be quite dense with these things.

As it stands, I've been offered a rate of 2% interest, 4 years fixed, over 20 years mortgage from Nationwide.

What kind of saving could I expect from doing it the way you've suggested?

Also, are there other benefits in doing it this way? i.e. Inheritance tax free? Greater protection?

Or what are the other disadvantages?

holly_hobby

Currents wrote: »

Hi Let us see and Holly,

So Loan to Value would save me money how? Apologies, I can be quite dense with these things.

As stated the lower the loan to value (ie mortgage debt compared to property value), you will often have access to lower mortgage interest payrates (ie be charged less).

Currents wrote: »

As it stands, I've been offered a rate of 2% interest, 4 years fixed, over 20 years mortgage from Nationwide.

Thats not a 90% product rate, so either you have advised the lender that you are buying from Dad at under purchase, and they are happy to accept the difference as the effective deposit OR you have simply stated that the property is worth 300k (subject to survey) and you will need a mortgage for 180k (ie they just assume the difference is wholly being funded by your own monetary deposit). Did you explain to them the basis of your purchase from DAD ?

I know that they accept family gifted deposits (monetary), but not sure if their current deposit criteria permits concessionary purchase arrangments.

Currents wrote: »

Also, are there other benefits in doing it this way? i.e. Inheritance tax free? Greater protection?

Or what are the other disadvantages?

No, you can not buy at under value from Dad, and the difference not be classed as a potentially exempt gift (PET) or transfer for IHT purposes - which of course would only be relevant if as I explained earlier his net estate on death (inc none exempt transfers (ie PETs) or gifts), exceed his available nil rate IHT allowance at that time.

Any PET exposure can be provided for, as Let Us See advises, by a life policy (gift inter vivos is a specifc IHT product), and either effected by you on life of another ie Dad (the insurable interest being the potential IHT liability), or written by Dad under trust for you or the exeuctor, to again avoid it going through the estate and compouding IHT issues - and your IFA should be able to guide on this if necessary.

With regards CGT - valid point raised by Clapton re married couples, BUT, I interpreted your post to read that your parents are/were separated (hence 2 separate homes), and are now back together (hence the long story you mention) , with Dad now reconcilling with Mum moving into her home, and bring to an end their formal separation.

IF thats the case, and if Mum and Dad are still married he must be able to prove their formal separation (during the PRR claim period), ie that this property has been his primary residence throughout the duration of the split (which at the time was thought to be permanent), which may be evidenced by a minimum of such things as Dad being on voters roll at his home address, the address is registered with HMRC as his home contact address, pension/income at this address, utility bills in his name at this address (with evidence of consumption levels consistent with it acting as primary residence), joint bank & savings accounts closed, replaced with a single named account at his address, etc, again all registered in his name at this address.

And in addition to separation confirmation (ie court order, separation deed or other evidence HMRC may request of it being a permanent separation as per above), will go someway for HMRC to establish Dad qualifies for full primary residence relief (or PRR) on any gain on sale (disposal) - essentially they would be trying to verify that the original separation wasn't contrived as a CGT avoidance exercise.

Of course it parents are not actually married then married couple nomination requirements don't automatically apply, although he may still be asked to document the basis of any full PRR claim.

But if the situ is as I think from your original post, then yes he'll qualify for full PRR on any gain - just for guidance the gain is essentially the difference (less permitted exemptions,reliefs etc) between the original acquistion price -v- market value at time of disposal).

As you can see, tax (especially CGT) can be a complex area, and I would suggest that Dad obtains some independent advice from his own qualified tax practitoner, regarding both CGT and any IHT liability his estate may be exposed, both as a result of this transfer and in general overview (update of wills too).

Hope this helps ...

Holly xx