Sold to family - advice

booksurr

ReadingTim wrote: »

tax is paid as a percentage of the actual price, not someone's arbitrary decision on what the price ought to have been..

yes if you mean SDLT, no if you don't.

JimmyTheWig

bmthmark wrote: »

That's the thing i'm not aware of any tax implications. I'm just curious as what's what's stopping them from selling now at the higher amount. Surely they would of gained and somewhere along the line less stamp duty would of been paid.

Nothing's stopping them from selling at a higher amount and pocketing the difference. In effect, the parents have given them a gift. It's no different to if the parents had, in the first place, sold at market value to someone else and given the child £65k of the proceeds.
Incidentally, less SDLT would have been paid if they'd done that.

booksurr

bmthmark wrote: »

To answer your questions, it was a family home then the parents moved out and my friend now lives there. So it sounds like CGT may apply

so if the parents sold after they moved out they have a CGT liability, but without knowing timings and values it is impossible to say if they would end up with anything to pay, although it is unlikely given the way CGT relief works when ex main homes are sold soon after moving out

as for the rest others have already flagged the key issues
- continue to live there and you must pay full market rent to its owner or you will be subject to income tax on the value of any rental discount if you pay less than market value rent (benefit in kind if rental value >£5k)
- continue to live there and not pay any rent makes it a gift with reservation of benefit and so reverts back into your estate for IHT
- sell it after moving out and CGT liability arises, if sold to a relative then market values are used, not the cash changing hands
- sell it at a discount and deprivation of assets may arise along with potentially exempt transfers for IHT ("7 year rule")

bmthmark

booksurr wrote: »

so if the parents sold after they moved out they have a CGT liability, but without knowing timings and values it is impossible to say if they would end up with anything to pay, although it is unlikely given the way CGT relief works when ex main homes are sold soon after moving out

as for the rest others have already flagged the key issues
- continue to live there and you must pay full market rent to its owner or you will be subject to income tax on the value of any rental discount if you pay less than market value rent (benefit in kind if rental value >£5k)
- continue to live there and not pay any rent makes it a gift with reservation of benefit and so reverts back into your estate for IHT
- sell it after moving out and CGT liability arises, if sold to a relative then market values are used, not the cash changing hands
- sell it at a discount and deprivation of assets may arise along with potentially exempt transfers for IHT ("7 year rule")

Thanks for the summary it makes sense.
It definitely highlights that when I am in a position to help my kids out spend a lot of time investigating/researching the best way as it could get very complicated. I'm amazed out how complicated things can get.

Thanks to every that has posted. There is a lot of knowledgeable people on here :beer:

Keep_pedalling

BJV wrote: »

I sort of understand. Why shouldn't a parent want to help their children. In fact I plan to sign over my house to my son and pay him rent. I have worked hard all my life, taken lots of risks, missed lots of holidays and time off to provide for my family and as I understand it although I am fit, healthy and well if in later years I needed help the powers that be could force a house sale to help pay for it.

That IMO is a foolish plan which could back fire horribly. For a start to avoid it being a conditional gift and make sure no IHT is paid if you survive over 7 years you have to pay full market rent which could become somewhat expensive as the years go by. If you live say 6 years and the value of the house doubles your estate still get hit with IHT for its full value and your son will get hit with GCT when he sells it. Your estate will probable also loose the nil rate band for the private residential relief that is being introduced next year.

You also risk loosing you home if you son gets involved in a messy divorce, goes bankrupt, or he dies before you.

The local authority are also likely to treat the move as deprivation of assets when if you ever need residential care, but even if that is not the case do you really want no choice in where you end up in your most vulnerable years?

G_M

SDLT- no problem

CGT - if the property was not the parents' primary residence it should be based on market value not sale value.

IHT - the 'gift' (difference between market and sale value) would be included in the Estate if parents died within 7 years

'Deprivation of Assets' - could be an issue if parents need local authority care in the future