Another one for CGT experts please

jolester

Hi all

I've done some googling but I'm not finding a straightforward answer to a question regarding capital gains tax, in fact I didn't know there was such thing until tonight

My mum has lived in her house since 1989/1990. It was a council house that at some point over the years she had as a right to buy, she has been mortgage free for approx 8 years and the property is worth approx 140k

My mum is 64, in good health and still working full time. She would like to help me start a business which needs some investment with the view to working there part time in a couple of years when she retires from her current position.

Her initial thought was to remortgage her house to raise the amount but she can't get the amount needed due to her age/income etc so she then thought of asking my sister to get a mortgage on the house for the amount of investment required, giving that money to my mum/me to set up the business and for my sister to then own the house and Signing to say my mum can live there rent free forever.

We're all happy with this arrangement but we're not sure if it is subject to any tax laws? Or if you can think of anything that might be a better idea please feel free to make suggestions

Btw, if it makes any difference my mum is looking for 60k to invest and 20k as her own "buffer"

Thanks for any thoughts

JennyP

I am no expert but for a mortgage company to lend to someone who isn't going to live in the property, wouldn't it be a buy to let mortgage? And if so, isn't there normally a clause saying you cannot let to family? I know I can't on my buy to lets.

And yes. I think there'd be cgt to pay if your sister eventually sold it if it hadn't been her main residence.

I could be wrong though!

jolester

Thanks for responding

I'm wondering if perhaps my sister just raised the money herself (remortgaging her own house?) and then my mum changing her will to leave the whole house to my sister might be more suitable?

JennyP

If your sister is willing to, that sounds like a good suggestion. But I would get your mum's house valued first. If your sister raises £60k for you, and your mum's house is worth £120k, you'd be losing out.
Could you make the will to allow for that eg first £60k from the property sale to your sister, remaining value split. Also you'd need to pay your sister interest. Presumably the borrowing would be on a repayment basis so you'd owe your sister less over time. Could you factor that in somehow? Or would that be what your sister would gain from doing this for you in the first place?

I am thinking aloud a bit.... Sorry!

jolester

I think we are all in agreeance that in the early stages my sister would be "worse off" as she'd be giving me and my mum money and paying interest, but long term she'd probably end up better off as she'd have an asset worth more than today even after paying the interest, but I understand that I'd be making money as this would allow the business element and would happily "lose out" in the long run to be able to do the business today and my sister would happily "lose out" in the short term to have the asset in future

JennyP

jolester wrote: »

I think we are all in agreeance that in the early stages my sister would be "worse off" as she'd be giving me and my mum money and paying interest, but long term she'd probably end up better off as she'd have an asset worth more than today even after paying the interest, but I understand that I'd be making money as this would allow the business element and would happily "lose out" in the long run to be able to do the business today and my sister would happily "lose out" in the short term to have the asset in future

Bit if your mum ever needed to go into care, and her house was sold to pay for it, your sister could miss out. Just playing devil's advocate - hope that never happens.

jolester

True, hopefully wouldn't happen but still a consideration for my sister ...

Any more ideas !!!55357;!!!56904;

00ec25

lets start again please:

1. does your sister have an existing mortgage on a property she already owns: yes / no?

2. does your sister live with your mother? will sister move into the house if she becomes its owner?

3. does your sister have enough cash to cover the large deposit required for let property, or is your mother intending to discount the house by at least 25%?

4. can your sister afford a mortgage of 80K on top of whatever debts sister already has? As your mother would continue living there sister cannot get a BTL mortgage, she must get a Regulated mortgage, few lenders so them, they have higher rates and they are based on how much your income is, not how much rent is paid.

jolester

1. does your sister have an existing mortgage on a property she already owns: yes

2. does your sister live with your mother? will sister move into the house if she becomes its owner? No

3. does your sister have enough cash to cover the large deposit required for let property, or is your mother intending to discount the house by at least 25%? Mother is intending for my sister to own the house which she will sell to her for £80000,or, my sister and my mum to have joint mortgage for value of £80000 and both to be on deeds and mortgage

4. can your sister afford a mortgage of 80K on top of whatever debts sister already has? As your mother would continue living there sister cannot get a BTL mortgage, she must get a Regulated mortgage, few lenders so them, they have higher rates and they are based on how much your income is, not how much rent is paid.

She can easily afford a standard 80k mortgage and has this confirmed as was looking into BLT properties before but this is the first we've heard of a regulated mortgage

00ec25

jolester wrote: »

1. does your sister have an existing mortgage on a property she already owns: yes

2. does your sister live with your mother? will sister move into the house if she becomes its owner? No

3. does your sister have enough cash to cover the large deposit required for let property, or is your mother intending to discount the house by at least 25%? Mother is intending for my sister to own the house which she will sell to her for £80000,or, my sister and my mum to have joint mortgage for value of £80000 and both to be on deeds and mortgage

4. can your sister afford a mortgage of 80K on top of whatever debts sister already has? As your mother would continue living there sister cannot get a BTL mortgage, she must get a Regulated mortgage, few lenders so them, they have higher rates and they are based on how much your income is, not how much rent is paid.

She can easily afford a standard 80k mortgage and has this confirmed as was looking into BLT properties before but this is the first we've heard of a regulated mortgage

if your mother cannot be party to the mortgage on mother's house because of mother's, age then sister will not be allowed to have a "normal" BTL mortgage because the property will be occupied by a close relative. Therefore, sister would be required to take out a "family" mortgage aka a Regulated (BTL) mortgage.

The criteria for those is the same as for a second home: large deposit and borrowing based on income multiple.

sister will be liable for CGT when she sells as it is not her own main home.

sister will have to pay the higher rate SDLT on the amount of cash she pays to mother as it will be a "additional property" purchase for sister

the 60k discount (140 - 80) mother gives against the propriety will be classed as a Gift With Reservation (GWR) against mother's inheritance tax position when she dies - although realistically I doubt mother's estate will ever be anywhere near the threshold where IHT would apply anyway.

the 60k discount also will (may) be classed as deprivation of capital if mother ever needs to claim means tested care benefits in respect of care home fees

as others have said, it will be much more tax efficient if sister can simply borrow 80k against her existing house and give 20k to mother and 60k to "your" business. That does of course assume sister's house has at least 100k of equity in it?

jolester

00ec25 wrote: »

if your mother cannot be party to the mortgage on mother's house because of mother's, age then sister will not be allowed to have a "normal" BTL mortgage because the property will be occupied by a close relative. Therefore, sister would be required to take out a "family" mortgage aka a Regulated (BTL) mortgage.

The criteria for those is the same as for a second home: large deposit and borrowing based on income multiple.

sister will be liable for CGT when she sells as it is not her own main home.

sister will have to pay the higher rate SDLT on the amount of cash she pays to mother as it will be a "additional property" purchase for sister

the 60k discount (140 - 80) mother gives against the propriety will be classed as a Gift With Reservation (GWR) against mother's inheritance tax position when she dies - although realistically I doubt mother's estate will ever be anywhere near the threshold where IHT would apply anyway.

the 60k discount also will (may) be classed as deprivation of capital if mother ever needs to claim means tested care benefits in respect of care home fees

as others have said, it will be much more tax efficient if sister can simply borrow 80k against her existing house and give 20k to mother and 60k to "your" business. That does of course assume sister's house has at least 100k of equity in it?

Thanks for your comments, please see response below

My mum should hopefully be able to be party to a mortgage as I believe many lenders lend up to aged 70? (I know based on more than age alone but her financial position otherwise stable)

No IHT worries for the future...

My sister does have more than 100k in equity in her own home