Father & Son on Mortgage (Capital Gains Tax Query)

Maniac816

Scenario:

Father & Son have been on a mortgage for a property since it was purchased.
The property is a second property for the Father who has their name to another primary property he lives in.
The property is the primary residence for the Son. The Father has never lived there.
The Son pays all of the mortgage off every month and can show this via their bank transactions.
The Father pays none of the mortgage off per month and never has.

Question:

If the Father carries out a Transfer of Equity so that the house is solely in the Son's name, is there any Capital Gains Tax to pay when the Son then sells the property?

Is there a way to avoid paying Capital Gains Tax if the house is sold?

Thanks for any advice.:huh:

Pixie5740

Maniac816 wrote: »

If the Father carries out a Transfer of Equity so that the house is solely in the Son's name, is there any Capital Gains Tax to pay when the Son then sells the property?

If the property remains the son's only or main residence then there would be no CGT to pay when the property is eventually sold. However, the father may have a CGT bill when he transfers the equity to his son as CGT is based on the consideration when the asset is disposed of i.e. the market value.

Maniac816

Pixie5740 wrote: »

However, the father may have a CGT bill when he transfers the equity to his son as CGT is based on the consideration when the asset is disposed of i.e. the market value.

Is there any way I can find out if the Father definitely would still incur CGT or not?

When the house is sold, the new mortgage would be in the Son & Partner's names and would drop the Father anyway.

If the new mortgage removes the Father's name anyway, is it pointless Transferring Equity before the new mortgage if the Father is charged CGT regardless?

Pixie5740

If there's a mortgage on the property you can't just go transferring equity without the lender's permission (which they probably won't grant). It would have to be done at the same time as the son & partner get a mortgage.

Whether there will be any CGT to pay depends on how much the property has risen in value since the father & son purchased it (i.e. the gain) and how much CGT allowance the father has left in the tax year he disposes of his share of the asset.

booksurr

Pixie has missed the question of beneficial interest since CGT is based on who are the beneficial owners, not the legal owners.

• clearly father has not paid any mortgage payments
• did father pay any of the deposit (or did father make a gift to the son of the deposit money and there is documentary evidence to support this)

if father can establish he has no beneficial interest because the only reason he was on the deeds was so that the son could get the mortgage in the first place then father may have a good case for being exempt from CGT. However, there is no single factor which determines simple beneficial ownership - the case depends on the facts

if there is enough money at stake it would be well worth taking professional advice from a tax accountant. Here is some background... http://www.icpa.org.uk/portal/tax/putting_someone_on_property_deed_is_not_necessarily_answer

G_M

Relevant factors incluse (as others have said:

* father's beneficial interest
* whether there is a mortgage
* whether father & son own as Joint Tenants or Tenants In Common (and if TIC, then % split of ownership).

CGT would arise when father disposes of his asset, not when son sells the property.

MacMickster

A long time since I had anything to do with beneficial ownership of property, but I seem to recall that if land is held in trust by legal owners on behalf of a beneficial owner then that trust must be evidenced in writing (usually on the TR1 when the property is purchased). Trusts involving the settlement of land are different from other trusts in that they can't be purely verbal.

Again, from distant memory, it may be possible to have this deed of trust recognised in writing before the sale of the property, but I would get proper legal advice on this before proceeding.

Maniac816

booksurr wrote: »

did father pay any of the deposit (or did father make a gift to the son of the deposit money and there is documentary evidence to support this)

The Father provided a substantial deposit making the property purchase possible. However they have not and will not be receiving any beneficiaries from the sale of the property and have had no part in paying the mortgage although in joint Father & Son names and joint names on the deeds. This would be provable via bank statements.

May I ask how this is arguable via official means if known when the house comes to be sold?

I think the Father & Son will hold off the transfer of equity based on the possibility of this 'beneficial interest' argument if it comes to it. That link shall be read.

Thanks for the replies so far, appreciated.