Buying house off parents

holib22

Need a bit of advise.

The house I currently live in is in my parents name, have lived here since it was bought and have covered the mortgage payments in full for the last 10 years of a 12 year mortgage so far. Myself and my husband can't get a mortgage in our name poor credit rating plus I'm currently a full time student. Where paying my parents an additional £20,000.00 on top of paying their mortgage so as at the end of the mortgage term the house is then mine and my husbands.

Where a bit stumped as to how we go about sorting any paperwork out stating we've paid them the £20,000 and then the transfer of the deeds so as the house then becomes ours.

Can anyone advise what we need to do??

Linton

Sounds a mess.

Can I express the situation another way: Your parents own a house which you rent from them at a rate of £20K+mortgage. They dont live in the house. You have no paperwork giving you any rights to the house.

Is that correct? Have they informed their mortgage company?

Pixie5740

No good deed goes unpunished. Have your parents been declaring the rental income from this property? Are they aware that they maybe in line for a Capital Gains Tax bill when they eventually transfer ownership to you?

Have you already paid your parents the £20k?

xylophone

Your parents bought a house with a mortgage? Was this a residential mortgage?

They have never lived in it?

If a residential mortgage, did they get "consent to let" from the mortgagee?

In effect, you are paying rent to your parents by paying their mortgage?

Have they declared this to HMRC?

At the date of sale (transfer of the property to you), the market value of the property will be assessed and your parents will need to consider their CGT position.

It is unlikely that the market value of the property will be £20,000.

holib22

Yes I originally lived with my mom, then they moved back in together I stayed put and my now husband moved in with me. The house wasn't originally bought with the intention of me buying it off them it's just how it's worked out now

£20k hasn't been paid in full it's being paid to them monthly along with the money to cover the mortgage

As far as I'm aware I don't believe HMRC are aware as no financial gain on there be half is being made from the rent/mortgage payments. The house was bought for 70k its only worth 100k now which is why they said the 20k so as they get something from selling it to me if that makes sense.

Guest101

holib22 wrote: »

Yes I originally lived with my mom, then they moved back in together I stayed put and my now husband moved in with me. The house wasn't originally bought with the intention of me buying it off them it's just how it's worked out now

£20k hasn't been paid in full it's being paid to them monthly along with the money to cover the mortgage

As far as I'm aware I don't believe HMRC are aware as no financial gain on there be half is being made from the rent/mortgage payments. The house was bought for 70k its only worth 100k now which is why they said the 20k so as they get something from selling it to me if that makes sense.

So they're mortgage being paid off isn't a financial gain?...

Browntoa

Capital gains tax as not primary residence

Deprivation of assets if done to avoid care fees

The list goes on

steampowered

The legal paperwork is easy. You would just need a TR1 form transferring ownership from your parents to you.

It is the tax position that is more tricky. As the property is not your parents' residence, sale of the property will trigger CGT liability.

As this is not a transfer at market value, you might find that CGT is charged on the difference between the market value of the property now, and the price your parents bought it for. Regardless of the fact you are only paying £20k.

It might be worth getting an accountant to make sure that the CGT aspect is handled properly. You don't want your parents to face an unexpected CGT bill.

xylophone

Twelve years ago, your parents (with whom you lived) bought a house with a residential mortgage.

Your father moved out after a certain time and your mother joined him- this was ten years ago.

You stayed in the house and paid your parents sufficient to cover the mortgage plus a certain amount which was meant to cover part payment for the house but in the absence of a formal agreement could also be regarded as rent - if not rent, then a sort of deferred purchase payment - CGT implication?

Your parents needed consent to let - did they get it?

Your parents needed to account for the rental income to HMRC.

At the point of transfer, as this will be a "connected parties" transaction, it may be that a formal valuation will be required to establish whether there is any CGT liability?

holib22

So am I understanding this correctly then, if they bought the house for 70k on the transfer of ownership when mortgage is paid if the house is worth 100k they will pay capital gains tax on the 30k??

A formal agreement is what we currently need to sort regarding the £20k as we're not sure how to go about that so as it's not seen as rent. Any suggestions??

Don't really understand the tax side of things if I'm honest. It was always just seen as my home as I lived with my mom if that makes sense.

saajan_12

holib22 wrote: »

As far as I'm aware I don't believe HMRC are aware as no financial gain on there be half is being made from the rent/mortgage payments.

1) Do they have Consent to Let or a Buy to Let mortgage that allows renting to family members? If not they could be in breach of mortgage conditions.

2) Only the interest part of mortgage payments can be used to offset income tax, not the capital repayment portion. If parents are higher rate payers, then from this year the part of the interest portion can only be counted at basic rate. So, there might be a 'profit' as far as HMRC are concerned if Rent income > Mortgage interest + allowable expenses (repairs, maintenance etc incurred by parents)

3) Stamp Duty: For your purchase Stamp Duty is based on total money paid + balance of any mortgage you 'take over' (over simplification). Sounds like this is below £125k and your first purchase so nothing payable here.

4) Capital Gains Tax: For your parents, this is based on the difference between current market value and purchase price (less any buying / selling costs e.g. legals) Put in the details into a CGT calculator using current market value as sale price (because you are connected persons). If the gain is £30k, there may be some liability beyond their annual allowance. How many months have you lived there and how many months have they owned it in total?