Purchasing a property for my retired mother

megakid

Hi all - I was wondering if anyone can give me some clues as to the strategy I take on the following scenario.

My mother is soon to be returning to the UK from living in Spain for the last 10 years. She has no property here but does have quite a few assets&cash in Spain which will eventually be moved back over time. Currently I want to help her purchase a nice property on the South coast of England.
She is retired and together, we can both muster approx £250k as a cash deposit - £150k will be from her, the rest from me. The property will be an 'investment' for me, and the 150k will be an inheritance gift - with the proviso that she lives there rent free afterwards ofcourse! I am hoping to top this up with a £100-150k mortgage to get a budget of approx £400k for the property.

I am less concerned about the mortgage as you can get a "Dependent Relative Mortgage" which keeps rates relatively low vs BTL mortgages. The main concern is my longer term tax position. My initial plan was to purchase it as a second home and treat the £150k from my mother as a gift (with all the usual 7 year time delay on inheritance tax etc) but have read that this might be a tax inefficient way to handle it since I am a higher tax rate payer so will be subject to top rate of CGT.

Can anyone give any comments or experiences similar to this? Even if it's just confirming that there's no better way of doing it!

Cheers!

booksurr

the obvious best way to do it is to reduce the budget to a level where you do not need a mortgage so you do not have to be named on the deeds. That way the property is in her name, you give her 100K, she buys as her main home . You have no CGT liability, your 100k is a gift under your IHT liability (which is hopefully not relevant!) and you will inherit the whole lot back on her death

you plan at the moment does leave you exposed to CGT and there is no way around that as it is not your main home

there is also the theoretical chance that mother will be exposed to Pre Owned Asset tax (POAT) since the property is in your name but she has part funded it and is the only person to benefit from living in it. With a property worth 400k there is at least a chance the rental value would be >£5,000pa and thus mother could be exposed to POAT even if her input is only 150k http://www.hmrc.gov.uk/poa/poa_faqs.htm

CLAPTON

megakid wrote: »

Hi all - I was wondering if anyone can give me some clues as to the strategy I take on the following scenario.

My mother is soon to be returning to the UK from living in Spain for the last 10 years. She has no property here but does have quite a few assets&cash in Spain which will eventually be moved back over time. Currently I want to help her purchase a nice property on the South coast of England.
She is retired and together, we can both muster approx £250k as a cash deposit - £150k will be from her, the rest from me. The property will be an 'investment' for me, and the 150k will be an inheritance gift - with the proviso that she lives there rent free afterwards ofcourse! I am hoping to top this up with a £100-150k mortgage to get a budget of approx £400k for the property.

I am less concerned about the mortgage as you can get a "Dependent Relative Mortgage" which keeps rates relatively low vs BTL mortgages. The main concern is my longer term tax position. My initial plan was to purchase it as a second home and treat the £150k from my mother as a gift (with all the usual 7 year time delay on inheritance tax etc) but have read that this might be a tax inefficient way to handle it since I am a higher tax rate payer so will be subject to top rate of CGT.

Can anyone give any comments or experiences similar to this? Even if it's just confirming that there's no better way of doing it!

Cheers!

if the 150k is a gift but is used to buy the house, then the 'usual' seven year IHT rule doesn't apply. This is because she will have the right to live there so the money is treated as a gift with reservation.

However if her estate (plus the 150k) will be less than 325,000 (or 650,000 if her estate can benefit from her husbands IHT allowance) then this may not matter.

If you own the property but do not live there, then, when sold you will be liable to cgt.

CLAPTON

booksurr wrote: »

there is also the theoretical chance that mother will be exposed to Pre Owned Asset tax (POAT) since the property is in your name but she has part funded it and is the only person to benefit from living in it. With a property worth 400k there is at least a chance the rental value would be >£5,000pa and thus mother could be exposed to POAT even if her input is only 150k http://www.hmrc.gov.uk/poa/poa_faqs.htm

I don't see how POAT is relevant here.

booksurr

CLAPTON wrote: »

I don't see how POAT is relevant here.

surely because mother is giving son 150k which son will spend to buy a property that mother will live in.

The cash is the asset and therefore has come back to benefit mother in the form of the house she then does not own herself but does live in rent free

xylophone

If the idea is for your mother to have a home, why not simply buy a property within your cash budget?

You can make your mother a loan of £100000 ( with a properly drawn up agreement) which will be secured against the property which she buys in her sole name. She could pay you interest - this would have to be declared for tax purposes but you might choose to invest it in your pension, thereby indirectly getting the tax back?