Tax implications on second property

Poppyhead

I'm thinking of buying a flat for an adult child to live in as they will never be able to save while renting. I will be a cash buyer but I don't want to buy the property in their name as that would be unfair to the other children (who are all settled). This would mean it would be a second property for us. We'll keep the property for about 3-5 yrs by which time daughter should be earning enough to get a mortgage of their own. I was planning to ask daughter to repay us the legal costs (stamp duty, purchase costs etc) on a monthly basis similar to rent. This seems a fair arrangement as it will be significantly cheaper than their current rent enabling them to save and have a bit of a life. Will this be "income" for tax purposes or is it repayment of a loan? I don't want to do anything dodgy but need to know what the rules are. Would a mortgage advisor give me advise even though I don't want a mortgage? I'm not sure who to talk to. Do I need an accountant, tax adviser, mortgage adviser or none of these?

Pixie5740

What you are proposing is the least tax efficient way of going about it. You'll need to pay the higher rate of SDLT as you will be purchasing a an additional residential property, any income will be subject to income tax, then Capital Gains Tax when you eventually dispose of the assets, and possibly Inheritance Tax as well.

Setting up a private mortgage between you and your daughter would be a more sensible way forward. Have a search on the forum as there are numerous existing threads by people in a similar situation to yourself.

If you don't require a mortgage why would you consult a mortgage adviser?

Keep_pedalling

It would be classed as rent and as such taxable.

Why not provide an interest free loan for her to purchase it? Cuts out the second home stamp duty, and loan repayments would not be taxable.

xylophone

You have the cash - you could see a solicitor about arranging a loan agreement where you are the mortgagee - you would take a first charge on the property, your daughter having bought it with the loan in her own name.

Your daughter could make capital repayments to you each month for the first few years (or capital and interest if you prefer - the interest would need to be declared to HMRC) and then re-mortgage with a bank/building society when able to do so - the balance of your loan would then be repaid in full.

Keep_pedalling

Is the value of your estate high enough that it is likely to be subject to IHT? If so it might be wise to consider this an opportunity to take advantage of the 7 year rule, and make part of this a gift, with equal gifts to the other children for fairness.

Poppyhead

Thank you all for your replies. I've never heard of a private mortgage but will checkout the forums as suggested, that may be the best way to go.

G_M

* aditional SDLT
* Income tax
* Capital Gains Tax

Poppyhead

So three lots of tax on one property? That seems a bit excessive especially as I'm not actually thinking I will make any profit out of this, I'm just trying to help child keep their head above water for the next few years.

00ec25

Poppyhead wrote: »

This would mean it would be a second property for us.

so the higher rate SDLT will apply as you are the owner and are adding to the number of properties you own

Poppyhead wrote: »

We'll keep the property for about 3-5 yrs by which time daughter should be earning enough to get a mortgage of their own.

so you will sell it to dauaghter in 3 -5 years time at which stage you will be taxed on capital growth - if there is any

Poppyhead wrote: »

I was planning to ask daughter to repay us the legal costs (stamp duty, purchase costs etc) on a monthly basis similar to rent. This seems a fair arrangement as it will be significantly cheaper than their current rent enabling them to save and have a bit of a life. Will this be "income" for tax purposes or is it repayment of a loan?

fair or not, you incurred the costs yet you are getting someone else to pay them for you, so yes of course that is income for you

G_M

Poppyhead wrote: »

So three lots of tax on one property? That seems a bit excessive .

Yeah tell me about it!

But now May's had her wings clipped and Corbyn's in the ascendancy, there might be 4 or even more by the time daughter is ready to stand on own 2 feet.......

"Property is theft........."

xylophone

So three lots of tax on one property? That seems a bit excessive especially as I'm not actually thinking I will make any profit out of this, I'm just trying to help child keep their head above water for the next few years.

If you go with the private mortgage, the only tax you would need to consider would be income tax if you charged interest on the loan to your offspring.

Capital repayments would not attract tax.