Bank of Mum and Dad liable for CGT?

Accidental.Landlord

Hi folks - I'm getting increasingly worried that I may cop for a massive CGT bill as a result of helping my daughter purchase a house.

Eight years ago my daughter wanted to buy her first house (in Reading, where it's quite expensive). I gave her £25K to help with her deposit. Despite this, her their earnings were not sufficient to secure the necessary mortgage. She managed a beauty salon, where the base salary was poor but the tips were good. Unfortunately, the tips can't be taken into account by the lender.

So she and I applied for a joint mortgage. They would not allow me to take out the loan without me also being on the deeds. I have no interest in the house and my daughter pays the entire mortgage, every month, without help from me.

Fast forward five years. My daughter got married, had a daughter and wanted to move to a slightly larger home. She still has a poorly-paying job (on paper, anyway). Even added to her husband's earnings, they didn't earn enough to renew the 1st mortgage, let alone increase it, slightly.

So she and I secured a mortgage on the property she wanted to move into. Then it was pointed out to me that since purchasing the original property, George Osborne had introduced much higher stamp duties on second properties; this, to collect tax on landlords' profits. I am obviously not the intended victim of such a tax, so I put my own house (which I jointly own with my wife - mortgage paid) solely into my wife's name.

Now I learn that I may be liable for CGT! My daughter's house was bought for £220 and sold for £320K. Of course, the house that she was buying had also gone up by £100K so no actual profit was made.

So, the question I'm asking is, I suppose, have I become an accidental landlord? If so, am I liable for CGT even though I have never and will never see a penny of the proceeds of the sale of house number 1.

In 2017 I was made redundant so obviously I now live in fear of a brown envelope in the post.

Please can someone tell me where I stand?

Thank you.

kidmugsy

Accidental.Landlord wrote: »

So she and I applied for a joint mortgage. They would not allow me to take out the loan without me also being on the deeds. I have no interest in the house

It sounds to me that legally you did indeed have an interest in the house - you owned half of it (as a tenant in common, presumably?).

Accidental.Landlord wrote: »

Fast forward five years. My daughter ... wanted to move to a slightly larger home. ... So she and I secured a mortgage on the property she wanted to move into.
Now I learn that I may be liable for CGT! My daughter's house was bought for £220 and sold for £320K.

It sounds to me as if you made a capital gain of £50k, less various costs perhaps (legal, for example). I imagine (I am no lawyer) that you therefore owe CGT. In your shoes I'd see a tax accountant pronto. Especially as you may already have started racking up potential capital gains on the second house.

Accidental.Landlord wrote: »

Of course, the house that she was buying had also gone up by £100K so no actual profit was made.

You are arguing that you didn't really make a gain because you spent the gain on something else. This argument will be treated with derision.

On the whole, DIY investing works out better with stocks and shares than with property. You might be wise to check with your accountant or lawyer whether any problems are on the horizon concerning your wife's house. (I don't see any, but I'm not a lawyer).

Mr_Singleton

Am wondering if in a few years time the OP’s daughter will be complaining that NHS can’t fund the OP’s care needs but will of course stay rather quiet about the Tax avoidance on a £100k of unearned income.

It’s not the mega rich you need to worry about it the millions of the middle classes.

Carrot007

Yes you will be.


Should have used a better lender who would have beenm open to better options (Not much help now I know).

Accidental.Landlord

Thanks for all answers, so far. For the for the avoidance of doubt, there was never any desire or intention for this house purchase to be an investment; it was the ONLY way at the time to get the mortgage. This was just after the crash, and lenders were being even less flexible than is the norm.

And, yes, legally I had an interest in half the house. What I meant to say was I would not be personally benefiting from any increase in its value.

So it seems I am liable for CGT, even though I have never/will never see a penny. While I can see the reasons for targetting landlords, who do this to make a profit, surely some human at HMRC would see this for what it is. I guess my next message will be from jail!

Caz3121

Accidental.Landlord wrote: »

And, yes, legally I had an interest in half the house. What I meant to say was I would not be personally benefiting from any increase in its value.

have you explained to your daughter the situation?
It would seem fair that your daughter returns some of the money to cover the tax you incur due to helping her out and gifting her your equity from the property

kidmugsy

Accidental.Landlord wrote: »

While I can see the reasons for targetting landlords

It has nothing to do with targeting landlords. CGT was introduced in 1965 and always applied to residential property other than your own principal private residence.

BoGoF

Surely she is giving you the initial £25k deposit back?

If not, why not?

00ec25

this is a complex tax and you have a choice, go by the well intentioned, ill informed, musings of those who have replied above, or see a suitably qualified professional for advice you can rely on

CGT is nothing to do with being a LL, it has everything to do with whether you had a beneficial interest in the property. The tax is not based on legal ownership, it is based on who got what, ie the beneficial interest.

the fact you are so confused you are even calling yourself an accidental LL is a further pointer towards you needing proper help.

Hmrc are well aware of the bank of mum and dad when it comes to mortgages and deposits. It is possible to remove any CGT liability by removing your beneficial ownership, even on the place now sold.

but that is not something you can DIY on a forum....

as for your SDLT stumbles, they are likely to also backfire since this rule applies:
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm09820

SuperHan

Accidental.Landlord wrote: »

I am obviously not the intended victim of such a tax, so I put my own house (which I jointly own with my wife - mortgage paid) solely into my wife's name.

This does not stop additional rate stamp duty land tax being charged on the new property

You and your wife are treated as one person for the SDLT additional rate rules, so putting the property solely in your wife's name does not change the SDLT position.

In fact, if you have a mortgage on your own home, you may have created an SDLT charge on moving the property into your wife's name only.

You really need proper advice.

Accidental.Landlord

Thanks, everybody. It's been quite a rollcoaster, reading your various replies. The most significant thing I've taken away from this, is that I need to seek professional help.

Thanks again.