helping your child buy a property

oliver_mead

I’m 60 years old, just retired, married and in good health. I have a family home with no mortgage. 10 years ago I gave my son some money, to add to his savings, to put a deposit on a flat in London. The idea was to ‘get him on the housing ladder’ and with both our salaries we got a mortgage. Apart from the first year ( when I also lived there), he has been the only person living there. We have now paid about 50% each and the mortgage is virtually paid off. He’s still single and unfortunately needs to move home because of neighbour problems, and I am prepared to move my financial interest with him. Over the past 10 years the flat has increased in value from £250K to £450k. I had originally thought that he would get married, and the newlyweds would then get a new house (and mortgage) together. Over time he would pay me back what I had paid for, (i.e. part of the deposit, mortgage, and odd running repairs), and everyone would be happy!

I would have helped my son onto the housing ladder, and I would hopefully make some money for my retirement. I trusted my son 100% that this would work- and it has. I was not selfish and did not keep my money and invest my savings (deposit + mortgage payments) in an ISA where I would earn interest and pay no tax. Now, from what I have read, I will get stung for Capital Gains Tax when the property is sold. So, what do I do? Do I change the deeds to make him the sole owner? Do we set up some form of ‘trust’? Do we just sell up and I pay £1000s CGT? Or is there a mixture or some other way? I have other savings and pension plans, so I am not desperate for the money now or maybe even in the next 10 years. Does anyone know if, as joint owners we can sell the flat and buy another together? If I have to pay CGT, he will not have enough money left in his ‘half’ to buy another flat, even if I give him what I have left! I am sure many people are in this position, so any help would be welcome. The professional help also seems so daunting. Do I need a tax consultant £? Or financial adviser £? Or Solicitor££? An accountant £? All of them!!?

anselld

You will be liable for CGT on your share of the property when it is disposed.
Disposal would include transferring your share to your son. So you are stuck with CGT I think.

You *might* be able to argue that you never intended to have a beneficial interest but you were simply on the deeds to facilitate your son getting a mortgage. I have no idea how you would prove that and obviously you would be kissing goodbye to your investment in favour of your son.

pmlindyloo

So many questions.

You need professional advice!

Read this article - it just might give you an idea of how complicated it is

http://www.theguardian.com/money/2014/apr/24/property-sale-what-capital-gains-tax

booksurr

anselld wrote: »

You *might* be able to argue that you never intended to have a beneficial interest but you were simply on the deeds to facilitate your son getting a mortgage. I have no idea how you would prove that and obviously you would be kissing goodbye to your investment in favour of your son.

not possible
OP states they lived there for the first year so cannot possibly now claim to have no beneficial interest in the property since it was once their home

OP you are liable to CGT
the gain you have made is considerably more than you would have got via the very modest amounts you can invest in an ISA
selfishness has nothing to do with it. You make a financial investment and always intended to recoup that investment for your own benefit, therefore you are rightly subject to CGT

there is no way to escape that, as soon as you dispose of the ownership out of your name you (and you alone) will be liable for CGT on your share. Transfer to a trust = a disposal. Gift to son = disposal. Sale to son = disposal. Sale on open market = disposal

giddypenguin

oliver_mead wrote: »

I was not selfish and did not keep my money and invest my savings (deposit + mortgage payments) in an ISA where I would earn interest and pay no tax. Now, from what I have read, I will get stung for Capital Gains Tax when the property is sold. So, what do I do? Do I change the deeds to make him the sole owner? Do we set up some form of ‘trust’? Do we just sell up and I pay £1000s CGT?

However, your investment has almost doubled - which you wouldn't have got in an ISA. Taking financial advice at the outset would have been a better idea if you were setting this up as an investment - I'm afraid tax is inevitable - it looks like you've made some money on this - so yes, you do have to pay tax.

anselld

booksurr wrote: »

not possible
OP states they lived there for the first year so cannot possibly now claim to have no beneficial interest in the property since it was once their home

Fair enough, yes I missed that OP lived there at the start.

oliver_mead

Thanks for your comments.
As my son and I have not kept a tab on who pays for what (as we did have a joint account for some years) and we also exchanged money through that account for many ‘normal’ reasons, and also gave each other cash, then how does the tax man know if I paid 10 or 90% towards the cost of the flat? The 50% figure is to be honest, just what we think it is. We are not a family that keeps records like that. Family is family, we just help each other.
On the other hand can I just ‘gift ‘my part to my son, and hope I live for more than 7 years, so it is not included in my estate?
Just to confirm one point: For the first year as I was working in the area at the time, so I stayed Mon-Fri. At no time was it my main residence.

Brock_and_Roll

oliver_mead wrote: »

On the other hand can I just ‘gift ‘my part to my son, and hope I live for more than 7 years, so it is not included in my estate?
Just to confirm one point: For the first year as I was working in the area at the time, so I stayed Mon-Fri. At no time was it my main residence.

No. You are a confused (as a lot of people are) here between Inheritance Tax and Capital Gains Tax.

The 7 year rule applies to IHT - if you lived for 7 years, the asset would be exempt from the IHT calculation on your estate.

However, if you gift the house to your son, this amounts to a "disposal at undervalue" and as such CGT would apply to your share of the gain.

If you have paid for approx. 50% of the property then you are looking at potential CGT bill of £25k however as other posters have mentioned this has still been a fantastic investment.

Given the potential bill, I would book an appointment asap with a decent tax advisor/accountant - they may be able to knock the bill down a bit and at the very least they may be able to present the case to the HMRC is such a way that they don't have a go after CGT on all of the profit.

oliver_mead

I read on another website that ‘outright gifts did not attract CGT’- is this wrong? Could I ‘gift’ some or part of the property to my wife, since asset transfers between spouses are not taxed, and we would both then get an annual CGT allowance. As I am now retired (as is my wife) we have only a very small income from some savings. To further reduce the tax bill can we then add the CGT allowance to our normal tax free allowance? Also we did have a £20K solicitor’s bill for a dispute with the landlord of the flat. Can we offset that?

Pixie5740

If there's an outstanding mortgage on the property then you aren't able to gift your share of the property to someone else. The mortgage lender doesn't want you having a secure loan secured on a property you no longer own.

Transferring the property to your wife wouldn't necessarily circumvent Capital Gains Tax. There might not be any CGT when the transfer is done but when the spouse who received the gifted asset comes to dispose the asset, CGT can be calculated from when their spouse originally purchased the asset.

Whatever you think of to try and reduce your tax liability has probably already been thought of before and HMRC will have safeguards in place. I think you really need to engage a tax specialist and find out how you and your son own this property i.e. joint tenants or tenants in common.

oliver_mead

We are joint tenants. This seems so complicated I think I need to pay for some professional help: but what sort?
Do I need a tax consultant or financial adviser or Solicitor or an accountant? You can see my predicament. How do I find out what type of specialist I need.... any suggestions would be most welcome. (NOT the high street ones, they just seem to sub-contract out) and rip you off.