Transferring rented property to tenant/daughter

Brenny

I currently own a second home (mortgaged) that I rent to my daughter. As a carer with limited income she is unable to obtain a mortgage in her own right. However, she originally provided most of the deposit for the property. The house was purchased in 2002 for £130,000 and is now worth £230,000.

I would like to be able to pay off the mortgage and then pass the house over to her.

Can anyone advise me if this is possible and the repercussions for me. For instance, I assume I will have to pay capital gains tax and there is no way around that (how do I work out how much that will be), and will one of us have to pay stamp duty? Are there any other considerations?

Thank you for any advice you can give.

greenface

I can see this ones going to get tasty . Can i ask how she is able to get the rent together ?

Mojisola

Brenny wrote: »

I currently own a second home (mortgaged) that I rent to my daughter. As a carer with limited income she is unable to obtain a mortgage in her own right. However, she originally provided most of the deposit for the property. The house was purchased in 2002 for £130,000 and is now worth £230,000.

Is this recorded in an agreement? Does she own a percentage of the house to reflect her financial input?

Brenny

I'm not sure why it will get tasty. How she pays the rent is her business. I would just like some advice as per my post.

:-)

BigAunty

If you require means tested benefits or services in the future, like care/care homes, there could be a potential issue with your giving away your capital under the deprivation of capital rules. By rights, this is about people intentionally and deliberately giving away their cash, investments and properties in order to qualify for benefits and the onus is on the DWP/local council to prove this. For example, person gets made redundant, pays down their mortgage then says they are too poor to pay their council tax or put food on their table or person wins on the Bingo, gifts lots to their relatives, in order to continue receiving income support and housing benefit.

However, local councils have cottoned onto the way that some parents transfer their properties into their children's names or sell them off cheaply to them in order that they don't end up selling them to pay for residential care. Some councils now scrutinise the accounts of care home applicants many years previously to detect this, there's no time limit and no set rules.

See the Age uk website section on deprivation of assets to understand the rules around this. I'm not saying that this is your intention, just that it's a risk for you to investigate, since you've asked about repercussions.

00ec25

Brenny wrote: »

However, she originally provided most of the deposit for the property. The house was purchased in 2002 for £130,000 and is now worth £230,000.

as requested - was her financial contribution recorded at all - this is to establish if she has any beneficial ownership claim over the property or whether it is all yours

so a pre tax gain of 100k with an (apparent) market value of 230k

Brenny wrote: »

I would like to be able to pay off the mortgage and then pass the house over to her.

is she giving you money so you can clear the debt or are you paying off the mortgage from your own sources of funding
this has implications over consideration given and received and therefore stamp duty land tax liability

inheritance tax may (or may not) be an issue depending on whether she is paying you or you are gifting it

Brenny wrote: »

Can anyone advise me if this is possible and the repercussions for me. For instance, I assume I will have to pay capital gains tax and there is no way around that (how do I work out how much that will be), and will one of us have to pay stamp duty? Are there any other considerations?.

on the basic info provided you are liable for CGT on a 100k gain for a property you have owned for 12 years and have never lived in it as your own main home
therefore your taxable gain is 100k less personal allowance 10.9 = 89.1k payable at 18% (if you are a basic rate tax payer) or 28% (if higher rate taxpayer)

because it is your daughter you are "connected persons" so the full open market value (230k) of the property must be used in the calculation not whatever figure you "sell" it to her for (eg the value of the o/s mortgage)

as you have never lived in it you are not eligible for any other relief

Brenny

00ec25 wrote: »

as requested - was her financial contribution recorded at all - this is to establish if she has any beneficial ownership claim over the property or whether it is all yours

No, is it too late to do this? My father, who gave her (and the rest of the grandchildren) equal amounts of money, could make a statement.

00ec25 wrote: »

is she giving you money so you can clear the debt or are you paying off the mortgage from your own sources of funding

this has implications over consideration given and received and therefore stamp duty land tax liability

We are clearing the debt by using all of her rent money so probably this means we are using our own source of funding. Does this mean stamp duty is or isn't payable?

00ec25 wrote: »

inheritance tax may (or may not) be an issue depending on whether she is paying you or you are gifting it

Yes, realise this but am hoping that we will survive seven years so hopefully I am correct in thinking that will be ok?!

00ec25 wrote: »

on the basic info provided you are liable for CGT on a 100k gain for a property you have owned for 12 years and have never lived in it as your own main home
therefore your taxable gain is 100k less personal allowance 10.9 = 89.1k payable at 18% (if you are a basic rate tax payer) or 40% (if higher rate taxpayer)

Thanks. You have been really helpful.

Guest101

Brenny wrote: »

No, is it too late to do this? My father, who gave her (and the rest of the grandchildren) equal amounts of money, could make a statement.



We are clearing the debt by using all of her rent money so probably this means we are using our own source of funding. Does this mean stamp duty is or isn't payable?




Yes, realise this but am hoping that we will survive seven years so hopefully I am correct in thinking that will be ok?!





Thanks. You have been really helpful.

Are you declaring the income to the tax man?

antrobus

Brenny wrote: »

. For instance, I assume I will have to pay capital gains tax and there is no way around that (how do I work out how much that will be),

When you make a gift to a family member or other person you're connected with, you'll need to work out the gain or loss.....You must get a valuation of the asset at the time you made the gift. Use this value in place of any amount you received for the asset to work out your gain or loss

http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm

Brenny wrote: »

...and will one of us have to pay stamp duty?

If the transfer is a gift and no consideration in money or money’s worth is given then SDLT does not normally apply

http://www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm
Are there any other considerations?

00ec25

Brenny wrote: »

No, is it too late to do this? My father, who gave her (and the rest of the grandchildren) equal amounts of money, could make a statement.

to be honest I don't know how you would set up retrospective evidence. You need (paid) professional advice on this, the point being that if daughter can demonstrate a beneficial ownership interest in the property then part of the gain is down to her rather than you, Furthermore as she is living there as her main home then her share would be CGT exempt leaving you facing a smaller share of the gain and so less CGT

for example it might be argued (if true!) that she paid you a below market rent rate on the basis she was a part owner because of her deposit and therefore she was not paying full rental price as she would then be renting off herself!

Brenny wrote: »

We are clearing the debt by using all of her rent money so probably this means we are using our own source of funding. Does this mean stamp duty is or isn't payable?

SDLT is not payable since you are not receiving any consideration from your daughter in return for giving her the property. Its your own money you are using, It is semantics to say it is "her" rent money, it is not, it is your income on which you (should) have paid income tax for letting a rented property - the fact it was let to your daughter is irrelevant in that context

Brenny

Guest101 wrote: »

Are you declaring the income to the tax man?

Yes, of course.