Parent -> Child Property Transfer

gza101

Hi,
My parents helped me to buy a property in 2009 by taking out the mortgage in their name in order to get a better rate. At that time, the property value was around 250K and the mortgage around 200K.

From 2009 to 2013 I lived in the flat with 1-2 tenants sharing with me. From 2014 until now I left the UK and the flat has been rented via a single contract to a group of tenants. To be clear, since then, I have not had taxable income in the UK.

The current estimated value of the property is 500K. The mortgage is interest only and around 180K is outstanding (some was paid off during a remortgage).

My understanding is that in order to make the transfer from my parents to myself, I would incur stamp duty and CGT vs the current market price. Is there any way to do this more efficiently? 

Points which may be relevant:
1) My parents are retired now with minimal non-pension income, although my father works part time in the NHS.
2) They own 1 more property which is worth around 200K, outside of their home.
3) I have never purchased a property in my name in the UK or elsewhere.
4) I am currently studying abroad and do not have taxable income anywhere.

Many thanks in advance for any suggestions or advice.

Cakeguts

There are some questions. Who does the property belong to?  Is it you or do your parents own it? 

If your parents own it did you pay them money for them to put towards the mortgage when you were living there?  If so did they pay tax on that money?

gza101

1) The property is held jointly in my parents names.
2) I paid money towards the mortgage, as did 1-2 other tenants. This income was declared.
Many thanks for your reply.

foxy-stoat

You dont pay SDLT on the £500,000 gift - not sure what would happen when you sell in the future though.
Why do you think you would have to pay CGT when it was transferred to you, as you have never owed it?
Your parents would have to pay CGT also they would need finance advice about deprivation of assets, also they would need to clear the interest only mortgage when they give the property to you.

Nice one if getting a half million pound property for nothing though, good work.

AdrianC

gza101 said:

My parents helped me to buy a property in 2009 by taking out the mortgage in their name in order to get a better rate. At that time, the property value was around 250K and the mortgage around 200K.

They didn't help you buy it. They bought it. They own it.

From 2009 to 2013 I lived in the flat with 1-2 tenants sharing with me. From 2014 until now I left the UK and the flat has been rented via a single contract to a group of tenants. To be clear, since then, I have not had taxable income in the UK.

But your parents were the landlords. They are the ones that had all the legal responsibility, and should have been declaring the income for tax - whether they then gifted it to you or not.

The current estimated value of the property is 500K. The mortgage is interest only and around 180K is outstanding (some was paid off during a remortgage).
My understanding is that in order to make the transfer from my parents to myself, I would incur stamp duty and CGT vs the current market price. Is there any way to do this more efficiently?

No. It's a below-market-value transaction between connected parties. That's how it works.

They are gifting you £320k of equity (which will be subject to IHT if they die within 7 years, and may be taken into account as deprivation of assets if they need residential care). Will they be repaying their mortgage on the property, or will you be taking out a mortgage and paying them £180k to repay it? If they repay it themselves, then it's a £500k gift.

Points which may be relevant:
...
4) I am currently studying abroad and do not have taxable income anywhere.

I presume you're going to become a landlord, continuing to let the property out.

Are you aware how income tax needs to be managed for non-UK-resident landlords? How income tax works between the UK and your country of residence will vary depending on where you are, but you will almost certainly need to complete two tax returns, one for the UK, one for your home country.

Stupid question - why do you even want to run a residential lettings business in a country you don't live in? Why don't they just sell the property, and gift you the equity once it's sold?

foxy-stoat

gza101 said:

1) The property is held jointly in my parents names.
2) I paid money towards the mortgage, as did 1-2 other tenants. This income was declared.
Many thanks for your reply.

Naaa, you just paid rent on the property, as the other tenants.  You didn't pay money towards to the mortgage.

gza101

foxy-stoat said:

Why do you think you would have to pay CGT when it was transferred to you, as you have never owed it?
Your parents would have to pay CGT also they would need finance advice about deprivation of assets, also they would need to clear the interest only mortgage when they give the property to you.

Nice one if getting a half million pound property for nothing though, good work.

1) Whether the CGT is paid by my parents or myself, the impact is the same to the net value of the asset - that isn't the point.
2) They will not be using or requiring state care, or generating a negative tax bill.
3) Whether I was functionally liable or not (I was) for the mortgage, no-one taking interest rate and property value risk for a geared asset is receiving anything "for nothing". That's how borrowing money and buying things works, yeah?

Brock_and_Roll

2) They will not be using or requiring state care
How do you know they wont need that in next decade or do they have a very large pot of cash to cover home fees for a substantial period of time? 

foxy-stoat

gza101 said:

foxy-stoat said:

Why do you think you would have to pay CGT when it was transferred to you, as you have never owed it?
Your parents would have to pay CGT also they would need finance advice about deprivation of assets, also they would need to clear the interest only mortgage when they give the property to you.

Nice one if getting a half million pound property for nothing though, good work.

1) Whether the CGT is paid by my parents or myself, the impact is the same to the net value of the asset - that isn't the point.
2) They will not be using or requiring state care, or generating a negative tax bill.
3) Whether I was functionally liable or not (I was) for the mortgage, no-one taking interest rate and property value risk for a geared asset is receiving anything "for nothing". That's how borrowing money and buying things works, yeah?

1) Your question was concerning the CGT and SDLT liability that you would incur during the transfer.  The answer is that you wouldn't incur any.  Your parents will have a CGT liability on the market value - not a lot you can do about that I am afraid.
2) Whether they need state care or not, they still need to take advice concerning deprivation of assets.
3) Ok, so if you paid the additional £20,000 cash that you put in during "a re-mortgage" (assuming it was your remortgage) then you wouldn't be able for SDLT discount as your not a FTBer.

The stuff in bold, I dont understand, yeah?

AdrianC

gza101 said:

1) Whether the CGT is paid by my parents or myself, the impact is the same to the net value of the asset - that isn't the point.

The asset doesn't pay CGT. The taxpayer who disposes of it does. That's your parents, since they're disposing of their property by giving it to you.

2) They will not be using or requiring state care, or generating a negative tax bill.

You (and they) hope.

3) Whether I was functionally liable or not (I was) for the mortgage, no-one taking interest rate and property value risk for a geared asset is receiving anything "for nothing". That's how borrowing money and buying things works, yeah?

Sorry, do you actually think that makes sense? There is no "functional liability" for the mortgage. Your parents have a mortgage on a property they own, which they rent out. They are liable for ensuring it gets paid. You may be kind enough to pay it on their behalf, in return for being allowed to occupy the property... And you may take on the management of it, and be gifted the profits in return for your management services - but they are the landlords, and they have the income tax liability.

[Deleted User]

The 180k mortgage will need to be cleared before any transfer of ownership can be done.  Who is going to pay that, you or your parents?  It matters for SDLT.

Your parents will have a CGT bill based on a gain of 250k.  Look on the forum as there are several examples of the calculations works already.

I've absolutely no idea what your 3rd point means either OP.  However, I think it's safe to say that you are not a beneficial owner of the property regardless of what money you think you have put in otherwise you would have been due a portion of the rental income.