Parents Loaning Money, Tax Implications?

downinja

Long story short my parents own a home that they will be selling to me.

I currently have a charge on a property for about £20k but will need around £10k for a deposit on this property.

My parents will lend me the money but I am wondering what the tax implications of doing so will be?

I read that £3000 a year can be gifted, and £3000 can be carried over from last year. Can both my parents gift £5k each without any tax being applied?

getmore4less

Loans and gifts are not the same thing.

No tax on either.

zygurat789

downinja wrote: »

Long story short my parents own a home that they will be selling to me.

I currently have a charge on a property for about £20k but will need around £10k for a deposit on this property.

My parents will lend me the money but I am wondering what the tax implications of doing so will be?

I read that £3000 a year can be gifted, and £3000 can be carried over from last year. Can both my parents gift £5k each without any tax being applied?

The gifts do not attract tax. Any Excess gifts, over the allowed amount are added back to the estate after death, if the gross estate is over the IHT threshold then IHT at 40% is charged on the estate of the deceased and is paid for out of the estate before the beneficiaries get their share.

There will be no tax on money lent/given to you by your parents.

I don't know what you mean by:-
I currently have a charge on a property for about £20k but will need around £10k for a deposit on this property.

my parents own a home that they will be selling to me.

Now here are tax implications:-
1. Is this their home in which they live or is it merely a house they own?
2. If this is their home where are they going to live?
3. If this is a house they own how is the selling price to be arrived at?

downinja

I am divorced from the ex who has children of her own, as such I am no longer on that mortgage but can't release the equity yet (charge on property).

1. It's a home they own, not a home they are living in.
2. See above.
3. Probably market value.

zygurat789

downinja wrote: »

I am divorced from the ex who has children of her own, as such I am no longer on that mortgage but can't release the equity yet (charge on property).

1. It's a home they own, not a home they are living in.
2. See above.
3. Probably market value.

1. Then they may have to pay Capital Gains Tax on the profit on sale.
3. If the sale is not at market value then HMRC have the right to substitute market value for the actual sale price.

If your parents were to continue to own the house and their estate was below the IHT limit then you could acquire the property without payment of taxes.

downinja

House is worth circa £100k they paid about £40k for it around 15 years ago.

Rented it to my sister for this time, rent vs mortgage has meant they have avoided Capital Gains tax.

My sister is now buying a new house and I am buying this house.

Their estate is worth less than the IHT threshold but they are wanting to retire fairly soon and the profit they will help them in pension age.

Whilst they could remain the owners, surely that wouldn't allow me to mortgage it?

Am I right in thinking if they sell it to me they could be liable for 18% CGT on the £60k?

edit- As it's owned by both my parents, presumably it would be, 60 - legal fees - (11k x 2) = 38k ish, with 18% of that being around £7k.

zygurat789

downinja wrote: »

House is worth circa £100k they paid about £40k for it around 15 years ago.

Rented it to my sister for this time, rent vs mortgage has meant they have avoided Capital Gains tax.

My sister is now buying a new house and I am buying this house.

Their estate is worth less than the IHT threshold but they are wanting to retire fairly soon and the profit they will help them in pension age.

Whilst they could remain the owners, surely that wouldn't allow me to mortgage it?

Am I right in thinking if they sell it to me they could be liable for 18% CGT on the £60k?

edit- As it's owned by both my parents, presumably it would be, 60 - legal fees - (11k x 2) = 38k ish, with 18% of that being around £7k.

Mortgage interest can be deducted from rental income NOT mortgage.
This may avoid Income tax but not CGT.
Otherwise what you are saying looks reasonable

downinja

Yeah the rent probably wouldn't have breached the CGT threshold anyway.

zygurat789

downinja wrote: »

Yeah the rent probably wouldn't have breached the CGT threshold anyway.

Since the two are not connected it would be impossible

quietriot

downinja wrote: »

Am I right in thinking if they sell it to me they could be liable for 18% CGT on the £60k?

edit- As it's owned by both my parents, presumably it would be, 60 - legal fees - (11k x 2) = 38k ish, with 18% of that being around £7k.

Each parent will only pay at 18% on the basic rate band that their other income hasn't used up. 28% on anything above that.

downinja

Ok, so 38/2 = 19k + an income of say 10k each (they are both part time near retirement age).

What is the threshold for 28% rate?