gifted deposits off landlord who happens to be a parent!!!

beck_01

Hi all, new poster (first time buyer also!) Long story, me and my partner have rented our home from my mum for over 6 years. She wants to sell, we want to buy seems simple!? Oh no! Its so confusing! We're already starting from a bad point as my partner was declared bankrupt (now discharged 6years - technically off his record) with us paying £500 in rent for add long as we've lived here we can't afford to save fora deposit also. My mum said she would gift us the deposit - but now it seems she may be having second thoughts. . Example pricing now the house is valued at 100,000 - we get gifted (no money changes hands physically) 15,000 as our deposit from a parental gift - we get a mortgage on the house at a buying price of 100k with a 15% deposit - works out way cheaper than renting! Winner! My mum wants to know if she has to pay tax on the 100k sale price or 85k.. She says it will save them loads in tax if it's the latter and that they'd have second thoughts if it would cost them too much in tax ... i feel like I'm stuck in a right pickle and have no other option. We can't save a deposit and pay for rent but they want to sell pay off some of their mortgage. . Help please any advise/ideas thanks :-)

ACG

It would be a parental gift, being a landlord is not so much of an issue I do not think in this situation.

If your mum sells the house, it does not matter whether its to you or anyone else she would still potentially have CGT to pay? (I am assuming that is what she is talking about?) Its unlikely to be that much and dont forget by selling it to you rather than someone else she is probably avoid estate agents fees.

beck_01

Don't get me wrong she's amazing for even offering but then she's not willing to do anything about finding out the relevant info. . I have no clue as I've never bought a house before! Not sure about any kind of tax you would pay on selling a house? Or where to find any info or examples of cost to tell her. ??

silvercar

One thing for sure, any tax calculation would be based on the true market value as you are related.

CGT is calculated on the the gain on the sale, so it is the profit she has made out of owning it. One important question is whether this house used to be her home or if she only ever owned it as a letting investment.

amnblog

If mum sells she could be liable to capital gains tax if the property has grown in value since she acquired it.

There are certain costs she can apply against the gain to reduce the tax bill and also there are tax allowances. What she pays in tax also depends on her income.

She needs to talk to an accountant.

beck_01

It has been her home before yes, we lived here together when i was little.. She will have made a pretty large gain.. Not sure on exacts but i think she payed 30k for it back in 1999 and we had it valued last week at 100k thanks for all your help guys! :-)

beck_01

Just checked or was 34k in 1999

beck_01

"Disposals
The term ‘disposal’ is not defined and is construed as having a wide scope. It includes an outright sale to a third party, as well as sales at an undervalue and gifts.


Therefore, if a parent makes a gift of an asset to a child, the gift is a disposal chargeable to CGT. Further, where there is a disposal and the transaction is not made on a commercial basis, then for the purpose of calculating the capital gain the market value of the asset is used instead of the actual disposal proceeds.

• Market value is always substituted on a disposal between individuals with a close connection, such as close relatives.

• So, for example, if parents sell a holiday cottage to a child for £50,000 at a time when it is worth £120,000, the parents’ capital gain will be calculated as if they had sold the property
for £120,000."
Just seen this on another thread.. Is this the same idea??

Thrugelmir

Has the rental income been declared by your mother?

silvercar

So bought for 34k, worth 100k.

Gain (less buying and selling costs) would be about 64k.

16 years ownership, of which she lived in it as her main home for 10 years and rented it out for 6 yrs. Proportion exempt is 10+1.5=11.5 of 16.

So gain liable for CGT is 5.5 / 16 x 64= 22.

She would then get letting relief (google it) which would take care of upto 30k, so no CGT to pay.

Thrugelmir

silvercar wrote: »

She would then get letting relief (google it) which would take care of upto 30k, so no CGT to pay.

The sale however may flag up a lack of declared rental income.