Parent living in second house

djtjuk

I am hoping somebody may be able to help clarify my current property situation please.

My parents split up a few years ago, whilst I was still living at home. I decided to live with my mum, but because of some previous missed mortgage payments she was unable to get a mortgage. I decided to buy a house with the mortgage in my name, using a deposit that was gifted to me by my mother.

I lived there until 18 months ago when i moved in with my girlfriend (now Wife) in a house we bought together, with a joint mortgage.

I still own the other house and am paying the mortgage payments, but my Mum is giving me the money to cover them.

Could somebody please clarify where I stand with regards to tax, CGT etc?

One of the problems I currently have is that i am unable to borrow much more money to move into a larger house, because of the debt still owed on the first property and as far as the lender is concerned, I am paying the mortgage.

Thank you for the help

silvercar

There are two issues, the tax and the further borrowing.

For the tax, you could look to persuade the Inland Revenue that it is your mother's home and you only put the deeds/ mortgage in your name because your mother wouldn't have been able to obtain a mortgage. so effectively she is the beneficial owner. Other people have managed to claim this in the past, but it is not the norm. The general rule is that you are the owner and so would potentially pay tax on any capital gain when it comes to be sold. The tax will be reduced by the fact that you lived there at one point and you have a CGT allowance.

To borrow again for a different property you need to see a broker, The brokers should know which lenders will deal sympathetically with your case. The problem is that lenders are often not keen on letting property where the tenant is a family member as family are reluctant to evict. So it may be a lender will consider this borrowing as a commitment when calculating how much more to lend you.

djtjuk

Would CGT come into play if my mum decided she wanted to move and I sold the house and bought another?

Also where do i stand with regards to the money she is giving me to cover the mortgage? She gives me the exact amount

G_M

1) you are a landlord, receiving rent. This needs declaring to HMRC for tax. Whether your mother pays you, or pays your creditor (mortgage lender) on your behalf makes no odds.

2) is your current mortgage a BTL? Or do you have CTL?

3) as a LL you have other responsibilities. See New landlords: advice, information & links

4) as you own a property which is not your main residence, you will be liable for Capital Gains Tax when you sell

5) any application for a new mortgage will take into account your existing debts (mortgages).

djtjuk

Am I able to let her live there rent free? The mortgage payments are low and I could afford to pay them myself

booksurr

djtjuk wrote: »

Am I able to let her live there rent free? The mortgage payments are low and I could afford to pay them myself

as you once lived there I assume it is on a normal residential repayment mortgage rather than an interest only loan. As such if mother is paying "exactly" the mortgage payment you are already committing tax fraud since only the interest elemtn is allowable against tax. The capital repayment element is not allowable and you would have to pay income tax on that amount

yes you can of coruse stop collecting rent from mother. That will however confimr that it is your investment properpty liable to CGT and you would lose the ability to claim letting relief since it is then not being let!

as things stand at the moment:
you moved out 18 months ago so CGT is liable on the gain in value less the period when you lived there, less letting relief during the period it was let, less the final 18 months of your ownership
if all of that is new to you then do a search as calculating CGT on the ex main home is almost a weekly question

silvercar

Beneficial ownership

Beneficial ownership factors

HMRC listed a number of factors which are taken into account by HMRC in assessing whether a beneficial interest is held by a third party. The tribunal in the Lawson case considered these factors in reaching its decision in the taxpayer’s favour. These factors (which are also listed in the Capital Gains Manual at CG70230) are:

(a) Legal title;

(b) Occupation of the property;

(c) Receipt of any rental income;

(d) Provision of funds to purchase; and

(e) Receipt of sale proceeds on disposal.

HMRC’s guidance states that no single factor is determinative, and that each case must be considered in the light of its own particular facts. Nevertheless, applying the same factors as HMRC may be helpful in cases where beneficial ownership is in doubt.

You already have (b) and (d). (c) refers to renting out to a third party - so not relevant here.