Selling 2nd property to my son

Noopy66

My son was made bankrupt in 2013 and I bought an apartment so he can live with his son.
When his bankruptcy is passed its 6 years in 2019 he would like to buy the apartment from me.
It is valued at £200K now, however I only need £120K from him, would it be best for him to purchase from me at £120K and he would need to arrange a mortgage for this amount --- OR --would it be best for me to give him the apartment and for him to get a mortgage on it for £120K so he can pay me back?
I have read lots of info about CGT and IHT with lots of suggestions but not sure what method would be best , so we don't have to pay lots of tax and easier for him to get a mortgage??
Any advice on how to proceed would be helpful so we can start planning for the future, thanks

G_M

You'll have to pay CGT whatever you do, since the property is not your main residence.

If you sell to him below the market value, you'll be gifting him the balance, so if you die within 7 years that amount will fall within your estate for Inheritance Tax.

Whether he gets a £120K mortgage to buy the property from you, or you lend him the £120K and he applies for a mortgage to repay you after transferring ownership to him, will make no difference as far as I can see.

kinger101

As he's your son, the sale price for the purpose of a CGT calculation will be the open market value of the property.

Not a criticism on you, but had you been aware of tax implications at the outset, you might have planned this differently. It's always worth speaking to an accountant at the outset where you're going to be owning a property you won't live in yourself, whatever the reasons.

Noopy66

Thanks for your help so far, I have no knowledge of CGT , all new to me since I have been trying to find out about selling to my son.
Is CGT the tax charged on the full market value (ie £200K) and what is the percentage I would be charged? Is it tax imposed on me or my son as I wont be gaining anything, I purchased the apartment as a cash buyer.
How long would I have to have lived in the apartment before selling it so I can avoid CGT if possible?

Noopy66

I purchased the apartment for £175K, if the market value is now £200K, do I only have to pay on the difference of £25K?

Pixie5740

Noopy66 wrote: »

I purchased the apartment for £175K, if the market value is now £200K, do I only have to pay on the difference of £25K?

It's called Capital Gains Tax. You pay tax on the gain made on your capital when you dispose of it. Therefore, if you bought the property for £175k and it's worth £200k when you dispose of it the £25k gain will be subject to Capital Gains Tax. How much tax you pay will depend on a number of factors including what reliefs you can claim, whether you're a basic, higher or additional rate tax payer, and how much of your CGT allowance is left this tax year.

You can't avoid your CGT liability by moving into the property for a while, it's not as simple as that.

Pixie5740

Here are the mechanics of the CGT calculation. Plug your numbers in and see what answer you get.

http://forums.moneysavingexpert.com/showpost.php?p=69071134&postcount=6

caronoel

Noopy66 wrote: »

I purchased the apartment for £175K, if the market value is now £200K, do I only have to pay on the difference of £25K?

£25k, less any initial costs in purchasing (such as surveys, stamp duty @ 1% and solicitors fees) and any sale costs (likely to be solicitors fees).

The first £11300 of the gain will be exempt in 2017/18.

In all likelihood only about £10k of the gain would be taxable @ 28%, so your total Cgt charge would be about £2,800.


Did you spend any money making enhancements to the property?
Did you ever live in the property as your main home?

These factors could further reduce your charge

teddysmum

Is it easy/possible for a person recently discharged from bankruptcy to get a mortgage, as, presumably, they will have limited assets to cover the cost of expenses and monthly payments?

Noopy66

Thanks teddysmum, I wasn't sure if he would find a mortgage or not.
Yes he has always had a good job and is renting a place now which is more than his mortgage would be once he is discharged from bankruptcy, he has been in the black all the time since bankruptcy. He had a terrible marriage, she took all his money, left him with thousands in debt and the kids, then just walked out and took no responsibility for any of the arrears she left behind.
He is building up his credit score now, only the bankruptcy is against him.