Stamp duty

Moneysaver666

Ok I've looked this up it seems it needs to be the past 18 months and it looks like the treatment of annexes needs to be investigated.

holly_hobby

Moneysaver666 wrote: »

It's of sentimental value because he grew up there - his parents bought it in the 60's and had to pay off 4 other siblings upon their death in order to keep it. Although he does not occupy the part of the house the tenants are in presently, he has in the past. - does that count?

Yes, thats why he's permitted to apply lettings relief to the gain, but it doesn't exclude the business element of the property and resulting CGT exposure.

He has serious issues re non-declaration of rental receipts and income tax, he can make a retrospective declaration, and see how HMRC want to deal with it.

If you read the CGT link I gave in an earlier post it'll explain how its applied - but if this is a large house as you say, and his s/c annex represents say 30% of the entire dwelling, he'll have 70% of the gain exposed to CGT on disposal.

OOec and I have explained why they're aren't classed as lodgers (he would also have been in serious breach of this mge T&Cs) - I also doubt his mge lender is aware of the set up of the annex. But as they are no longer there, and unlike HMRC, I don't think there's any benefit to advise the lender of this now its well after the event.

In reality, the best way to mitigate HIS cgt exposure would be for him to just keep the whole property in his possession, and simply bequest it on his passing.

Although a majority of lenders have an upper ceiling age of 75 yrs, there are a couple whom don't (and I'm not referring to a lifetime mge arrangment). Of course Dads income must be suibale and sufficient to service the mortgage throughout the term, which without his tenants may not be an option, but if it is, this would mean that there's no need to effect any TOE, he retains sole ownership and doesn't suffer CGT on what could be a very meaty amount.

Could that be an answer ?

Another route is of course a lifetime mge - which although typically roll up the interest onto the debt, there are several lenders whom will permit the payment of interest along the mge term, to effectively ring fence the debt and protect the free equity ..... interest rates are circa 5/6%, so higher than a typical residential mge - but the important things is the mge isn't time bound, and only contractually repayable on the individuals entry into long term care or death. The added benefit being that you could assist Dad with payments, andyou could have it drawn up as a loan repayble from his estate on death (if for example you have siblings, and/or there is an IHT issue). Again, the annext will cause and issue, and lenders do not permit at all, the mortgagor to let a unit thats under a lifetime mge arrangment.

Another possible solution ?

More food for thought I hope.

Hope this helps

Holly xx

mischiefmaker

I can't comment on the CGT issues etc but we purchased my parents property 10 years ago for less than value (not as much as yours would be), the mortgage company were happy with the arrangement and just classed it as a gifted deposit (we already had an additional 40K to put down from sale. My parents still live with us in the annexe (which we had built) it is linked to the existing property but does have a separate entrance. Because it also has a kitchen it is classified separately for council tax (band A). My parents had to sign a disclaimer for the mortgage company that they do not have any claim to the property.
There is only one set of utilities as well.
We have never had any problems with mortgage companies accepting the arrangement, or any problems with council tax and house insurance (we pay the full buildings and our own contents, M&D pay their own contents)
Not sure if any of this helps but it has worked great for us for the last 10years and I just wanted to let you know that it is possible.

P.S not sure whether you have siblings but I have a sister and she was given a lump sum by my parents when we bought the house as well, and it has never caused any problems.

getmore4less

The net estate is £225k so IHT issues are not relevant.

The first thing to do is try to estimate any CGT liabilities if some/all of the place is disposed of.

One option to avoid CGT liability is to try to raise the mortgage but leave share in dads name at a % that uses up any allowances he has (TIC) with dad owing you the balance of £255k(make it £250k to reduce the SD) no CGT on death and no IHT as the net estate is below £325k.


I would start with the current lender, they already mortgage the place so may consider restructuring it to meet your needs..