Buying property from parents for less than market value- implications/ possible?

ses6jwg

According to HMRC it looks like they might have CGT liability of £9k !!! !!! !!

getmore4less

marymary37 wrote: »

We did it twice! We lived in both of the houses before we sold them to our sons. We never had to pay capital gains and neither son had any trouble with their mortgage lender and neither of them paid a deposit. We did sell both houses for their original purchase price and wrote a letter to the mortgage lender that we had made an "unreturnable gift",whatever that was supposed to mean!

living in the places makes a big difference.

Pixie5740

ses6jwg wrote: »

According to HMRC it looks like they might have CGT liability of £9k !!! !!! !!

Did you allow the CGT allowance of £10,900 for each of your parents as I assume that the property is jointly owned by them?

booksurr

ses6jwg wrote: »

According to HMRC it looks like they might have CGT liability of £9k !!! !!! !!

you will need to provide more info before you can get an accurate figure!!!!!

on the data so far we can say:

potential gross gain 120k market value - original purchase cost - cost of improvements = 50k gain

whether the "improvements" are all allowable is unknown, some expenditure may well relate to repairs rather than improvements and therefore would be disallowed. You say you have been paying them rent whilst you live there so they have presumably been declaring that rent for their own income tax position and therefore if any of the spend counts as repairs it should be claimed against their income tax not against CGT

based on the assumption the property is owned by both parents on a 50/50 basis then each parent has a CGT liability of 50/2 = 25,000 less 11,000 personal allowance (@14/15 rate not 13/14 rate) = £14,000 taxable gain

how much actual tax each parent pays will depend on their actual income in 14/15. Assuming their "total income" comprising gross salary + taxable savings interest + any other taxable income + the £10,975 gain is no more than £41,865, then the CGT payable would be 14,000 x 18% = £2,520 each
if one or both of them have total income above 41,865 then a part of the gain would be payable at 28% with the remainder payable at 18%.

Mathematically the worst case scenario is 14,000 x 28% = £3,920 each so about £8k in total.

make sure they have the cash to pay the tax , so you may well have to borrow more money that you thought so they can pay the tax bill from the cash you pay them

booksurr

marymary37 wrote: »

We did it twice! We lived in both of the houses before we sold them to our sons. We never had to pay capital gains and neither son had any trouble with their mortgage lender and neither of them paid a deposit. We did sell both houses for their original purchase price and wrote a letter to the mortgage lender that we had made an "unreturnable gift",whatever that was supposed to mean!

presumably you lived in each property from date of purchase to date of transfer and were therefore exempt from CGT as each was your main home for the whole of its ownership. Had you not done so then you too would have been liable for CGT on the % of the time you did not live there

your experience is therefore unrelated to the OP's- unless he has neglected to tell us that his parents did at some point in the past actually live there as their (then) main home

ali-t

I have done this before and bought property from my parents. The only difficulty I had ws when I went to sell it a few years later and lots of viewers queried how I managed to buy it so cheaply and what I had done to it to apparently double the asking price in 2 years. Not a huge problem in the grand scheme of things!