Is it possible ....

smileypigface

I have checked out my position with a tax consultant but now need to find out if what I want to do is possible.

Very briefly ... several years ago my sister did me a huge favour - she put up a deposit and took out a mortgage on a house for me to live in - our agreement being that I would pay the mortgage, bills and house maintenance bills and that at a mutual agreeable time we would sell the house and she would get back the same % of her initial investment from the sale price. I would be liable for costs of sale, legal fees, redeeming the mortgage from the proceeds of sale.

I have been offered a job elsewhere in UK by my current employer - they employ a relocation company who will 'buy' the house and give me the funds up-front based on a Guaranteed Sale Price. However, I will only be eligible if the mortgage is in my name.

The tax consultant (big reputable firm) has confirmed that our agreement stands as a contract in law and that as this is my main residence that I will not be liable for tax on my share of the proceeds of sale - I stated I intend to re-invest my share in a new property as my main residence. My sister however will be liable for income tax on the profit she will make.

I reckon the quickest and easiest way to get the house into my name would be for me to pay off the mortgage (I now have enough cash to do that). For my sister to transfer the house to me and for me to raise my own mortgage to give her her share and cover the cost of an essential bit of work on the roof.

The relocation company would then take the house on - allowing me to buy something at the new location immediately.

So my questions are:

1. Is it possible for my sister to transfer the property to me without me actually buying it from her?

2. Assuming she can simply transfer it to me, will I then be able to take out a mortgage on it to the value I require to give her her share and pay for the roof (this total would be well within the market value of the house)?

Any comments/advice on the best way to achieve this would be greatly appreciated.

Cheers.

homer_j_3

1. no
2. n/a as relies on 1 being a yes.

smileypigface

Thanks for the reply.

Obviously not the answer I was hoping for

Can you suggest a way of achieving the desired outcome?

Thanks again.

homer_j_3

Have you calculated the tax cost to your sister? The moment she sells to you or sells the house the tax liability exisits. I don't think you will be able to get around it - but I am not a tax specialist.

silvercar

There was a case like this in the Sunday Times recently. You need to persuade the revenue that the home & mortgage were only put in your sisters name in order to obtain the mortgage. Once they accept this then they should accept that the home is jointly owned. It may be tricky as they may want to know why the home wasn't put in joint names initially.

If you satisfy the revenue then your sister will be liable for CGT on the gain that her share has made. post price and date of purchase and current value if you want an idea of the CGT.

Your sister can transfer the property to you, but the revenue will deem it to be at market value and trigger the CGT liability just mentioned.

You could then raise a mortgage (providing your income and the property value can justify it).

If you are thinking of doing this, it is better to do the transaction before repairing the roof as your sister needs the market value to be low now.

smileypigface

homer_j wrote: »

Have you calculated the tax cost to your sister? The moment she sells to you or sells the house the tax liability exisits. I don't think you will be able to get around it - but I am not a tax specialist.

Yes, we have seen a tax consultant and have ascertained that as this is my main residence and I have paid for it all along that I have no tax liabiity - my sister however is liable to pay tax on her capital gain.

smileypigface

silvercar wrote: »

There was a case like this in the Sunday Times recently. You need to persuade the revenue that the home & mortgage were only put in your sisters name in order to obtain the mortgage. Once they accept this then they should accept that the home is jointly owned. It may be tricky as they may want to know why the home wasn't put in joint names initially.

If you satisfy the revenue then your sister will be liable for CGT on the gain that her share has made. post price and date of purchase and current value if you want an idea of the CGT.

.

Many thanks Silvercar - this is very useful -

The purchase price was 62,000 in 2000 - she put in 16,000 at the time so her share is 16/62ths (!) and mine is the remainder.
Market value currently about 180,000 - so I reckon (rounded up a little) her share is 46,500.

Thanks again for an interesting and useful post.:D

toonfish

can she not just sell it to you for what she paid for it?

silvercar

toonfish wrote: »

can she not just sell it to you for what she paid for it?

As its not an arms length transaction the revenue will expect her to pay tax as if she had received market value for her share.

To calculate the CGT you look at complete years of ownership, so lets assume you have 7 years ownership.

Out of her share of 46,500: for 7 years ownership, she would get taper relief at 25%, leaving £34,875. She has a CGT allowance of 9.2k, leaving £25,675.

This would be added to her income and taxed accordingly. If she is a higher rate tax payer the tax would be 40% of 25,875 ie 10,270. If she is not a higher rate payer it would be added to her income, so some could be at 22% and some at 40%.

I wonder if you could convince the revenue that she lent you the deposit but the property was solely yours and therefore she should have no CGT to pay. This would mean that she would only be getting her deposit back and not the gain:(

smileypigface

silvercar wrote: »

To calculate the CGT you look at complete years of ownership, so lets assume you have 7 years ownership.

Out of her share of 46,500: for 7 years ownership, she would get taper relief at 25%, leaving £34,875. She has a CGT allowance of 9.2k, leaving £25,675.

This would be added to her income and taxed accordingly. If she is a higher rate tax payer the tax would be 40% of 25,875 ie 10,270. If she is not a higher rate payer it would be added to her income, so some could be at 22% and some at 40%.

I

Thanks again, this is really useful - if she originally invested 16,000 then would this not be deducted from the 46,500 she is now going to receive and the tax liability worked out on the difference (ie, 30,500 gain)?

Really appreciate the help

Kiernan809

1. Yes - this is not a mortgage question but something you will need a solicitor for. She will complete what's called a deed of gift.

2. You will then own the house and are free to secure debts on it.

NB She may still have a tax liability when you sell determined by her hold-over relief deferral.