Trying to buy property off my parents

Mandy_humphries

Hi Hoping someone could help me

In 2011 my parents brought a house for me to live in ( at the time I was single and couldn't get a mortgage on my own)I have paid the mortgage payments every month no problem there. The condition always was as much not in writing that i would then go on and buy them out of the house when i was position to do so.

I am now married and in a position to buy them out.

The house was brought for £115.000 in 2011 current market value is £165.000.

We agreed I would buy the house off them for £100,000.

However now it appears that due to them never living in the house they would have to pay capital gains tax on the £50,000 minus any legal fees etc.

They want to use the money to pay off there mortgage on there current house would this class as reinvesting?

any help with really be appreciated

G_M

What they do with the money is irrelevant. They have made a capital gain of £50K on a property. They cannot claim private residence relief as they did not live there. They can claim legal fees etc, and use their £11K annual allowance (each) assuming they have not used it elsewhere on any other capital gains (eg selling an investment).


Off topic a bit, but did their mortgage lender know they were not living there and that you were.......?


And does HMRC know that they were receiving rental income (in the form of mortgage payments)? This should be declared as income.

Edi81

Good points G_M.

The OP may wish to change their username if that’s their real name.

babyblade41

It amazes me how many people go about gifting houses for no return or very little, then wanting some of it back again but for a bit more without seeking professional advice right at the start rather than after the deed has been done !!

steampowered

Could you buy them out gradually over several years?

Might help minimise their capital gains tax bill by using multiple years of their CGT allowance.

POPPYOSCAR

babyblade41 wrote: »

It amazes me how many people go about gifting houses for no return or very little, then wanting some of it back again but for a bit more without seeking professional advice right at the start rather than after the deed has been done !!

Who would you recommend for such advice?

Edi81

A solicitor may be a good shout.
Even posting on forums like this beforehand would tease out the pitfalls.

babyblade41

POPPYOSCAR wrote: »

Who would you recommend for such advice?

An accountant would have been my first port of call to go through any tax implications , then a solicitor

onwards&upwards

Why don’t they sell it on the open market then give you a cash gift from some of the proceeds after paying the CGT they owe?

middleclassbutpoor

Hi

Complete the following:

Current Market Value = £A

Minus

Purchase costs + buying costs + improvement costs + selling costs = £B

A-B = C- this is your parents gain

Take C and take away the CGT allowance (assuming no other gains or losses incurred this tax year) given to both your parents which total £24k

The remaining amount will incur a tax bill of 18% and/or 28% depending on their income.

As an example £115k plus £2k purchase costs, 1k improvements and £2k selling costs = £120k

Current market value = £165k

Gain = £165k- £120k = 45k

Less allowance of £24k = gain of 21k.

Assuming that both parents are equal owners this will mean that £10,500 will be added on to their income for them year. If with this added on they remain within the basic rate tax band, they would be liable for an 18% charge on the £10500. If some fell into the higher rate tax band then this would be liable to 28%. If your parent(s) are already higher rate tax payers then all of the gain will attract the 28%.

Your parents should seek the services of an accountant as the above is a very basic example. There could be other levers that can be pulled to reduce this potentially but an accountant would be best to advise.

POPPYOSCAR

babyblade41 wrote: »

An accountant would have been my first port of call to go through any tax implications , then a solicitor

That would depend on the accountant.

Our accountant always has 'to look into'aspects of CGT. In other words find out from someone else.

I was just wondering if there is anyone out there who would specialise in this sort of thing.

Are there solicitors that deal with this?

Our daughter works for a solicitor firm but they do not deal with things like CGT.