Where do i stand?

Iwillresolvemydebt

Hi,
In 2004 I applied for a mortgage, which was accepted but because my credit rating was dire, my Dad offered to purchase the house and therefore take on the mortgage. My part in this is that I was to pay the total mortgage repayments which I have done. It was supposed to be a stop gap until my credit rating improved but approaching 15 years later, it is still in place. Whilst legally, the house is in my parents name, by all intents and purposes it belongs to me. I pay the mortgage (via my Dad), I pay for bills, upkeep, maintenance etc.

With this in mind, when it comes to me personally buying a new house, how should me and my parents deal with the equity from the house? They don't want it, they accept it should all be mine so its not a case that I'm taking something to which im not entitled. I guess where I am going is, what is the best way to approach this without having to pay (any hopefully!) tax on the transfer of the property, if indeed that is the best way. Perhaps the house should be sold, and the money gifted to me? I have no idea, that's why I am here..

Any help/advice is appreciated.

ACG

On the upside - you will probably benefit from not having to pay stamp duty on a second property.

On the downside - Your dad/you will likely be liable for CGT. You may also find that your dad gets asked about why he has not been declaring the income from the property and paying tax (in addition to any fines). Historically you could only write off the interest element of the mortgage in addition to actual costs where as over the last 4 years that has got progressively worse for landlords.

I would get advice from a solicitor/accountant before doing anything.

John_G_Jones

You’re a tenant and have been paying your father rent. If he’s not declared it then he needs to, and to pay any penalties and tax owing. It tends to be better to declare yourself rather than having it found out later.

The equity is theirs, and they are liable to the capital gains tax that will be due when it is sold.

If, after this is all sorted out there’s any equity left then they have every right to gift it to you but if they ever need care then deprivation of assets could come into play.

SDLT_Geek

I suggest you look out the papers from the time of the 2004 purchase. What you might find is either:

(a) Not only is the house "in the name of" your Dad, but it belongs to him beneficially, in which case you have some untangling to do, including perhaps a capital gains tax problem for your Dad. This is what the posts above are assuming.

or alternatively

(b) Although the house is "in the name of" your Dad, there is a declaration of trust making it clear that you have been the beneficial owner from the beginning and your Dad was acting as a bare trustee for you. This is quite possible; he could have been helping you by taking on responsibility for the mortgage, but without having any real share in the house. If that is the position then things now might be much simpler. That is partly because for tax purposes, one "looks through" a bare trust to the beneficial ownership.

Iwillresolvemydebt

Thanks, a very balanced view. I should add that none of this was done to intentionally avoid paying extra money (except for additional interest on a mortgage). In practice, the agreement and actions were as you mention in point b. That said, I do not recall any paperwork over the declaration of trust. Clearly some more digging is involved.

I should also add that i'm not looking to avoid anything that is having to be paid. If My Dad is responsible for CGT, it will be paid. What doesnt sit well however, is the mention of him being liable for income tax for when i have made payments to him which go directly to the mortgage; no more, no less.

Keep_pedalling

Although the payments made to you father not exceeded the mortgage payments they have, unless this was an interest only mortgage, being paying off the capital thus increasing the equity he holds in the property, which is taxable income.

Your father should take professional advice.

ACG

Iwillresolvemydebt wrote: »

Thanks, a very balanced view. I should add that none of this was done to intentionally avoid paying extra money (except for additional interest on a mortgage).

I think that is pretty much a given as it is going to cost more.

I should also add that i'm not looking to avoid anything that is having to be paid. If My Dad is responsible for CGT, it will be paid. What doesnt sit well however, is the mention of him being liable for income tax for when i have made payments to him which go directly to the mortgage; no more, no less.

You should have sorted all of this out a long time ago. My understanding is that if your dad comes forward and pays the tax, there are no fines/penalties - but do not hold me to that as I am only going off what I have heard from someone else.

You really need to get legal advice I think as you are talking about 15 years worth of tax which is not going to be a small amount, although it may be a small amount for the first 11 years and only start ramping up in the last 4 due to tax changes - which is why you need advice from an accountant, 1) to determine how far back hmrc will go and 2) how much is actually due.


With regards to the trust mentioned by SDLT Geek, this is probably worth looking in to further, it was not something I was aware of.

SDLT_Geek

ACG wrote: »

With regards to the trust mentioned by SDLT Geek, this is probably worth looking in to further, it was not something I was aware of.

There is an article which touches on the issues of someone being liable on a mortgage without having any underlying interest in the property here https://www.taxadvisermagazine.com/article/additional-properties though more in the context of an unmarried couple than a father and child relationship. It explains the difference between "being on the title" and having an underlying beneficial ownership.

Thrugelmir

Iwillresolvemydebt wrote: »

What doesnt sit well however, is the mention of him being liable for income tax for when i have made payments to him which go directly to the mortgage; no more, no less.

That's the inherent danger with going ahead with something without seeking advice first. The loop hole was blocked to stop abuse many many years ago. The money paid across is your fathers income and needs to be declared appropriately.

haras_nosirrah

Absolutely need to see a tax advisor for this one
If your father has been claiming income related benefits during this time you may have some bits to sort out there as well as the rent would be classed as income.

Did you request any advice before going down this path?