Buying property from parents to renovate and sell

dug1001

Hi all,

My grandmother has passed away and left her flat to my parents

I'm considering buying it from them, modernising, converting to a two bed etc to sell on.

The flat is worth around 370,000 in is current condition (crazy London prices) so I am looking at potentially remortgaging our house to raise a 25% deposit for a buy to let mortgage on it.

The 2nd home stamp duty rate will apply to me which will be almost £20,000.

My question is have any of you purchased a property like this from a family member, is there any legitimate way to avoid/lower that stamp duty,if I can't raise the full amount I may ask them if I can pay half and half on sale etc but I'm not sure of the complexities of this legally.

They will need to pay inheritance tax on the correct value of the flat in any case.

Any tips or advice greatly appreciated.

Thanks,

Peter

00ec25

you need to know a lot more about how the world works before embarking on your plan:

1. are you certain your grandmother's estate is large enough that it will have to pay IHT?
if the property is the main part of that estate, I somehow doubt it

2. did granny die within the last 2 years? did she leave a will?

3.do your parents actually want/need cash from you for the purchase? if not, and subject to Q2, why don't they do a deed of variation so you inherit the property without having to pay them?

4. you state you aim to do up and sell, so you will not a get a BTL mortgage since you have no intention of letting. You will need to raise finance another way - either by a re-mortgage on your existing property, or via a (commercial) development loan

5. your stated intention is to sell for a profit after works. That 100% means you will be viewed by HMRC as a property developer and so subject to income tax on your profits. You imply you already live elsewhere so it cannot be your main home and thus cannot be held to be subject to capital gains tax instead of income tax. As it is not your main home, it would not be exempt from CGT anyway.

6. SDLT, if you inherit the property instead of your parents, there would be no SDLT to pay at all since you would not be buying from anyone. If you do buy, you cannot avoid higher rate SDLT given it appears you already own a property of your own since you acknowledge higher rate would apply.

Norman_Castle

Would it be easier to modernise it leaving your parents as the owners with an agreement on how any increase in value is paid to you?

getmore4less

3 and 6.

If parents gifted there would be no SDLT no need for a DOV.

There will be other reasons it may be a good idea but SDLT is not one of them

davidmcn

Norman_Castle wrote: »

Would it be easier to modernise it leaving your parents as the owners with an agreement on how any increase in value is paid to you?

Seconded - unless there's some reason why transferring ownership is thought advantageous.

dug1001

Thanks for your reply. I do indeed have a lot to learn on this subject, and intend to learn a a lot on this project, if it looks to be viable once I've worked out all costs.

1.This property is the only part of her estate. My mother is under the understanding that she may be liable to pay 40% inheritance tax on anything over the value of £325k, but is meeting an advisor this week to clarify.

2. Yes, she died a month ago and did leave a will, leaving the flat to my mother (my mother actually bought the flat for her around 20 years ago but in my grandmothers name).

3. Yes, they will need the money to live on in retirement, and potentially pay any inhertitance tax if due. Although they wouldn't necessarily need all of the money right away.

4. I spoke to a mortgage adviser and outlined the situation. He suggested that I could possibly remortgage my house to raise 25% deposit for a BTL mortgage that didn't have any/high exit fees so that I could sell the property and settle that mortgage. I have enough equity in my house to purchase the flat but don't have a big enough salary to be able to borrow that much. Would you then suggest a commercial development loan as the way forward?

5. I understand that I would be subject to income tax on any proftis.

6. Understood, thank you. The property has definitely been willed to my Mother

Cheers,

Peter

dug1001 wrote: »

Hi all,

My grandmother has passed away and left her flat to my parents

I'm considering buying it from them, modernising, converting to a two bed etc to sell on.

The flat is worth around 370,000 in is current condition (crazy London prices) so I am looking at potentially remortgaging our house to raise a 25% deposit for a buy to let mortgage on it.

The 2nd home stamp duty rate will apply to me which will be almost £20,000.

My question is have any of you purchased a property like this from a family member, is there any legitimate way to avoid/lower that stamp duty,if I can't raise the full amount I may ask them if I can pay half and half on sale etc but I'm not sure of the complexities of this legally.

They will need to pay inheritance tax on the correct value of the flat in any case.

Any tips or advice greatly appreciated.

Thanks,

Peter

00ec25 wrote: »

you need to know a lot more about how the world works before embarking on your plan:

1. are you certain your grandmother's estate is large enough that it will have to pay IHT?
if the property is the main part of that estate, I somehow doubt it

2. did granny die within the last 2 years? did she leave a will?

3.do your parents actually want/need cash from you for the purchase? if not, and subject to Q2, why don't they do a deed of variation so you inherit the property without having to pay them?

4. you state you aim to do up and sell, so you will not a get a BTL mortgage since you have no intention of letting. You will need to raise finance another way - either by a re-mortgage on your existing property, or via a (commercial) development loan

5. your stated intention is to sell for a profit after works. That 100% means you will be viewed by HMRC as a property developer and so subject to income tax on your profits. You imply you already live elsewhere so it cannot be your main home and thus cannot be held to be subject to capital gains tax instead of income tax. As it is not your main home, it would not be exempt from CGT anyway.

6. SDLT, if you inherit the property instead of your parents, there would be no SDLT to pay at all since you would not be buying from anyone. If you do buy, you cannot avoid higher rate SDLT given it appears you already own a property of your own since you acknowledge higher rate would apply.

dug1001

Norman_Castle wrote: »

Would it be easier to modernise it leaving your parents as the owners with an agreement on how any increase in value is paid to you?

This is something I have considered but we're not sure yet how it affects them on the IHT etc

getmore4less

No transferable nil rate band from a deceased spouse(s)

Don't forget residential nil rate band.

Norman_Castle

dug1001 wrote: »

This is something I have considered but we're not sure yet how it affects them on the IHT etc

I expect IHT would be calculated on its current value and disregard later works.

chunkytfg

Ignoring all the points raised and discussed above another thing to point out might be the Lease length. The OP said it was a flat so in all likelihood its a LH property.

how long is the lease? Less than 70 years and the property is very difficult to sell without extending the lease and unless you've owned for 2 years yourself or the previous owner started lease extension themselves then you could be in for a big expense.

AdrianC

dug1001 wrote: »

My grandmother has passed away and left her flat to my parents

Please assure us all there's no emotional attachment to "Granny's home"?

I'm considering buying it from them, modernising, converting to a two bed etc to sell on.

Why not just do that while they own it? You can come to whatever agreement for splitting any profits, of course.

The flat is worth around 370,000 in is current condition (crazy London prices)

How much will it sell for once modernised? How much will the modernisation cost?

so I am looking at potentially remortgaging our house to raise a 25% deposit for a buy to let mortgage on it.

And when the BtL lender insist on seeing the tenancy agreement?

The 2nd home stamp duty rate will apply to me which will be almost £20,000.

Yep.

My question is have any of you purchased a property like this from a family member, is there any legitimate way to avoid/lower that stamp duty

No.

if I can't raise the full amount I may ask them if I can pay half and half on sale etc but I'm not sure of the complexities of this legally.

Because it's a "related persons" transaction, SDLT will be assessed on the market value, even if it's put through as being sold for less.

They will need to pay inheritance tax on the correct value of the flat in any case.

Surely it makes more sense to do a deed of variation of the will? Except, of course, your parents may not be willing to make you a £370k gift...

Don't forget that buying with the intent of improving then reselling means you'll be due for income tax on the profits.