Mortgage - Gift of Equity Taxes

jamesdaniels

I'm in the process of completing my mortgage for the purchase of a property I currently live in with my wife. The house was purchased 2 years ago my my father-in-law 2 years ago at the value of £250k. The value of the property now is £335k. My father-in-law has agreed to sell the property to us at £250k and gift us the £85k equity.

My questions is... Will either myself or my father-in-law have to pay any taxes on the £85k equity even though no money is actually exchanging hands.

Pixie5740

There isn't really a gift tax in the UK. If the property you are buying is not your FIL's main residence then he might face a Capital Gains Tax bill because he is disposing of the asset not because he is making you a gift. Inheritance tax could be an issue depending on the size of his estate, how long your FIL survives after making you the gift and whether he will be living in the property with you.

Victor_the_Gink

As Pixie has alluded to, we need to know if your FIL lives there. If he does not, then he will almost certainly have a CGT bill. IHT gets more complex based on a number of circumstances.

jamesdaniels

Unfortunately the property we live in is not my FIL main property even though he's the mortgage holder of the property.

Pixie5740

Then he may well face a CGT bill which will be based on the market value of the property not how much he sells it to you for.

Here's a link to an example CGT Calculation.