Renting/Buying off Parents

Mojisola

Cautious_Optimist wrote: »

You may be liable for "gift tax" if the property is "given" to you.

What gift tax?

deanbwfc

silvercar wrote: »

Is the £500 a month really rent or is it an agreed sale for £150,000 in 25 years hence that you are drip paying at £500 a month. A sort of savings plan for you to save up the money to purchase.

Yes this is basically it, it's drip paying £150,000 over 25 years, does this change things?

Mojisola

deanbwfc wrote: »

Yes this is basically it, it's drip paying £150,000 over 25 years, does this change things?

With nothing in writing, you won't get anything for your money until the sign-over actually happens.

There's a lot can change over 25 years.

If you're happy to think of it as rent and, if you don't end up with the house, you're not worried, leave things as they are.

If you would be spending that money on a mortgage and buying your own place if it wasn't for this arrangement, then get legal advice about drawing up an agreement.

deanbwfc

Yes we're looking at getting something drawn up, so it's basically like having a mortgage with her parents. We do want to end up with the house, we've no reason to move we wouldn't get better for the money. It's not me that's worried it's her parents, they want to do it all above board. We just want to make sure no tax is due, if CGT is due on the sale of the house then that's fine, they just don't want to be landed with a bill for previous years.

In summary - if we were treating the £500 as rent and her parents landlords we they should be doing a self assessment and paying tax each year on the income less allowable expenses. We're not treating it like this

We're treating it as buying the house for £150,000 and paying £500 a month for 25 years, 21 years remaining. We need to seek legal advice to get an agreement drawn up for the arrangement then pay any capital gains tax due for the date the house was sold and signed over to us. This correct?

Thanks for all your help

silvercar

We're treating it as buying the house for £150,000 and paying £500 a month for 25 years, 21 years remaining. We need to seek legal advice to get an agreement drawn up for the arrangement then pay any capital gains tax due for the date the house was sold and signed over to us. This correct?

I would think so.

So you become (became) the legal owners from day 1 and they granted you a mortgage (that could be secured as a charge on the property). You are then repaying the loan at £500 per month rather than rent, so no income tax for the parents.

There may be CGT from the portion of the gain for when it was in their ownership but not their PPR, but that would be a lot smaller than the gain over the next 25 years.

steeeb

deanbwfc wrote: »

Yes we're looking at getting something drawn up, so it's basically like having a mortgage with her parents. We do want to end up with the house, we've no reason to move we wouldn't get better for the money. It's not me that's worried it's her parents, they want to do it all above board. We just want to make sure no tax is due, if CGT is due on the sale of the house then that's fine, they just don't want to be landed with a bill for previous years.

In summary - if we were treating the £500 as rent and her parents landlords we they should be doing a self assessment and paying tax each year on the income less allowable expenses. We're not treating it like this

We're treating it as buying the house for £150,000 and paying £500 a month for 25 years, 21 years remaining. We need to seek legal advice to get an agreement drawn up for the arrangement then pay any capital gains tax due for the date the house was sold and signed over to us. This correct?

Thanks for all your help

The best result all round is to buy the house off them for 150,000 now and you and OH on the deeds with the parents having a charge over the property for there security. Or alternative all be on the deeds with an agreement in place over the ownership of the property - in any case a solicitor can sort this out for you. Shouldn't cost too much. Both you and parents should ideally seek independent advice regarding this to ensure both sets of interests are covered again shouldn't really cost that much.

It needs to be sorted sooner rather than later. Without an agreement in place for all intents and purposes you're renting and the parents are fraudulently failing to declare income and the house IS liable for CGT in the 4 years you've had it (and for longer if they've owned it for longer than this).

deanbwfc

steeeb wrote: »

The best result all round is to buy the house off them for 150,000 now and you and OH on the deeds with the parents having a charge over the property for there security. Or alternative all be on the deeds with an agreement in place over the ownership of the property - in any case a solicitor can sort this out for you. Shouldn't cost too much. Both you and parents should ideally seek independent advice regarding this to ensure both sets of interests are covered again shouldn't really cost that much.

It needs to be sorted sooner rather than later. Without an agreement in place for all intents and purposes you're renting and the parents are fraudulently failing to declare income and the house IS liable for CGT in the 4 years you've had it (and for longer if they've owned it for longer than this).

Yes we'll discuss this and get a solicitor involved. They bought the house that we live in in 1988 and lived in it until 2010 as the family home, built a house on the side of it then moved into that in 2011, my girlfriend and I we moved into the original house in 2011. It is all rather complicated I suppose, we just want to get it sorted

Cautious_Optimist

deanbwfc wrote: »

Yes we'll discuss this and get a solicitor involved. They bought the house that we live in in 1988 and lived in it until 2010 as the family home, built a house on the side of it then moved into that in 2011, my girlfriend and I we moved into the original house in 2011. It is all rather complicated I suppose, we just want to get it sorted

If they moved out in 2010, there shouldn't be any CGT liability, so long as you have records of the renovation costs. They may well be looking at a capital loss, if they sold right now...

scotty01

Would this suit your circumstances.

They gift you the property and sign it over to you now. Paying any capital gains tax due.

You continue to pay them your £500 as a private arrangement?

Cautious_Optimist

Mojisola wrote: »

What gift tax?

Good point.
I thought the receiver of a gift was liable for tax on it.
But I've checked on HMRC website and can't find anything about it.

I do recall an article in the Telegraph a few years ago, about how parents were getting caught out by the LR flagging up below market price sales to HMRC...

But I can't recall all the details now.
Best for OP to check HMRC website and then speak to an accountant ASAP.