Gift with reservation or Pre Owned Asset Income Tax

Dragonfly1980

Hi,

I'm hoping someone may be able to offer some advise.

I'm in the process of purchasing a bungalow for my mum and dad. They are both in their 60's, retired and need a home without stairs. They couldn't get a mortgage at an affordable rate due to their ages so I have offered to take a second mortgage. All of this is sorted and we're hoping to complete before Xmas on the sale and purchase.

They are selling their house, gifting me the money as deposit (minus some money for renovations) and then the mortgage tops the amount up.

The amount they are gifting is £100k in total so well under the lHT amount, however as they will be living in the property I am pretty sure the money will either fall as a gift with reservation or be liable for the Pre Owned Asset Income Tax. The trouble is I can't find a definitive answer as to which on. Can anyone help?

Thanks in advance.

Linton

I suspect you will need to talk to a solicitor on this one. Gift with Reservations would normally apply when they gave you their house but continued to live in it for free where the situation seems pretty clear cut. Shouldnt you/they be seeing a solicitor anyway? Have you covered the consequences of you dying first, becoming bankrupt, or divorcing when it could become necessary for your house, but their home, to be sold? What happens if you have a relationship breaking argument? Perhaps you could lose your job or become incapacitated and unable to pay the mortgage. It seems at first sight a risky step for your parents to take. "in their 60's" isnt old - at least one of them could live another 25-30 years. Wouldnt it have been easier and safer for them for you to have taken the second mortgage and given them the money to buy a bungalow?

Dragonfly1980

Thanks for your reply.

We've already covered all the bases on the questions you've asked, my parents house would never be at risk and I wouldn't be entering into this (and neither would they) if I ever thought it would.
I will ask the solicitor about the tax thing, wasn't aware they'd know but it's worth a shot.

xylophone

Your parents are gifting you a deposit so that you can buy a property.

On what basis have you taken out the mortgage? Is it BTL? If so, is the mortgagee content that you are "letting" to relations?

Your parents will, in effect, be repaying the mortgage by paying you rent?

booksurr

a GWR cannot be a gift of cash since by definition there is no reserved benefit derived from a gift of cash

I take your concern that the cash makes its way back to the parents in the form of a "part" of the property they then occupy, hence you rightly raise the issue of POAT, however, I think it more likely the cash gift is simply a PET given you are the sole owner of the property and will be liable to CGT on it

But as mentioned by others the parental rights to occupy the property could be a deciding factor and one which needs legal advice on, ie has a trust been created

Linton

xylophone wrote: »

Your parents are gifting you a deposit so that you can buy a property.

On what basis have you taken out the mortgage? Is it BTL? If so, is the mortgagee content that you are "letting" to relations?

Your parents will, in effect, be repaying the mortgage by paying you rent?

I had assumed that they would be living there free, which raised doubts in my mind re GWR. The gift is being given for a specific purpose and will indirectly provide the parents with a benefit.

Mojisola

Dragonfly1980 wrote: »

They are selling their house, gifting me the money as deposit (minus some money for renovations) and then the mortgage tops the amount up.

The amount they are gifting is £100k in total

This may be a problem regarding 'deprivation of assets'.

People who give away loads of money can't expect to get means tested benefits or help with care needs in the future.

Dragonfly1980

Thanks everyone for your replies.

They will be living there rent free. The mortgage is a second residential mortgage rather than BTL as family living there is not allowed under BTL rules.

I am aware of the deprivation of capital (I work in social care contracts so have had clear advice on that area and understand the risks if my parents do need to go into a care home). Part of the reason for the move is so that they are more likely to be able to remain in their own home and have care there, support at home is the main drive by councils now anyway and deprivation of capital does not apply.

The reason I thought GWR is although the gift is cash, the cash will be directly used to purchase the property and therefore can be clearly linked. Tbh it doesn't matter which it is as I would put an exception in for POAT so it's recorded as part of the inheritance tax as they will be nowhere near the limit, I just need to know which it is.