A complicated one...

Jaap

Hi there, hoping someone can help me here. I’m a bit simple and I tend to ramble so please be patient. 

About 18 years ago my dad bought a house as we couldn’t get a mortgage so we have rented the house from him, covering his mortgage payments with our rent.  

Now his health has taken a turn for the worst, and he wants us to get hold of the property in case anything happens to him.  I will also inherit a third of his estate when he does pass away, and combined this would take me over the inheritance tax threshold which is why we want to get it sorted ASAP. 

We have the money to pay off the remaining mortgage, but I am confused as to the best way to go about this. 

I’m presuming I can’t just give him the money to pay off the mortgage and let him gift us the house? So if we were to buy it from him could we buy it at a reduced price (ie the amount left on the mortgage) or would we be avoiding capital gains tax etc...? Or would we be better continuing as we are and waiting until the house is paid in full and letting him gift us the house as first planned? 

Any advice would be gratefully received

thanks for your time 

AdrianC

If even a single penny changes hands, to pay a mortgage off or otherwise, SDLT is payable.

You wouldn't pay CGT - he would as the one disposing of an asset that may or may not have had a capital gain in his ownership. And it would be based on the full market value, no matter whether a total gift, partial gift, or £0.

The usual 7yr taper applies to gifts for IHT, and don't forget deprivation of assets if he needs residential care.

Thrugelmir

Lend your father the money. That way the money becomes a debt of the estate. Document this fully and properly. 

There is no CGT on the property at the date of death. The estate is subject to IHT though. 

If the property is gifted before he passes away. Then CGT will become payable. 

Technically the money you have been paying to your father previously should have been declared as rental income in his hands. 

princeofpounds

The main things you have to be wary of are:

- deprivation of assets
- IHT 7 year rule
-  upset siblings (?) who will find the estate diminished.

Generally-speaking, the closer you get to buying the property and the further away from gifting, the better. But this kind of thing requires proper estate planning to be honest; he needs to get a lawyer with expertise.

What actually was the 'deal' around the house? You have been vague. Was he holding the house informally in trust for you? Or were you tenants? So far all we know is that a) he bought it, b) you rented it, and c) he now wants you to get your names on the title... somehow. So that doesn't really tell us anything at all.

Comms69

Jaap said:

Hi there, hoping someone can help me here. I’m a bit simple and I tend to ramble so please be patient. 

About 18 years ago my dad bought a house as we couldn’t get a mortgage so we have rented the house from him, covering his mortgage payments with our rent.  

Now his health has taken a turn for the worst, and he wants us to get hold of the property in case anything happens to him.  I will also inherit a third of his estate when he does pass away, and combined this would take me over the inheritance tax threshold which is why we want to get it sorted ASAP. 

We have the money to pay off the remaining mortgage, but I am confused as to the best way to go about this. 

I’m presuming I can’t just give him the money to pay off the mortgage and let him gift us the house? So if we were to buy it from him could we buy it at a reduced price (ie the amount left on the mortgage) or would we be avoiding capital gains tax etc...? Or would we be better continuing as we are and waiting until the house is paid in full and letting him gift us the house as first planned? 

Any advice would be gratefully received

thanks for your time 

the IHT threshold isn't on you, it's on the estate. 

You can give him the money and he can gift you the house. However it will still count as part of his estate for 7 years.

realistically the estate will have tax to pay, so it's best to accept that

Thrugelmir

Comms69 said:

Jaap said:

Hi there, hoping someone can help me here. I’m a bit simple and I tend to ramble so please be patient. 

About 18 years ago my dad bought a house as we couldn’t get a mortgage so we have rented the house from him, covering his mortgage payments with our rent.  

Now his health has taken a turn for the worst, and he wants us to get hold of the property in case anything happens to him.  I will also inherit a third of his estate when he does pass away, and combined this would take me over the inheritance tax threshold which is why we want to get it sorted ASAP. 

We have the money to pay off the remaining mortgage, but I am confused as to the best way to go about this. 

I’m presuming I can’t just give him the money to pay off the mortgage and let him gift us the house? So if we were to buy it from him could we buy it at a reduced price (ie the amount left on the mortgage) or would we be avoiding capital gains tax etc...? Or would we be better continuing as we are and waiting until the house is paid in full and letting him gift us the house as first planned? 

Any advice would be gratefully received

thanks for your time 

You can give him the money and he can gift you the house. However it will still count as part of his estate for 7 years.

 Even if there's no consideration doesn't avoid the CGT liability. 

Comms69

Thrugelmir said:

Comms69 said:

Jaap said:

Hi there, hoping someone can help me here. I’m a bit simple and I tend to ramble so please be patient. 

About 18 years ago my dad bought a house as we couldn’t get a mortgage so we have rented the house from him, covering his mortgage payments with our rent.  

Now his health has taken a turn for the worst, and he wants us to get hold of the property in case anything happens to him.  I will also inherit a third of his estate when he does pass away, and combined this would take me over the inheritance tax threshold which is why we want to get it sorted ASAP. 

We have the money to pay off the remaining mortgage, but I am confused as to the best way to go about this. 

I’m presuming I can’t just give him the money to pay off the mortgage and let him gift us the house? So if we were to buy it from him could we buy it at a reduced price (ie the amount left on the mortgage) or would we be avoiding capital gains tax etc...? Or would we be better continuing as we are and waiting until the house is paid in full and letting him gift us the house as first planned? 

Any advice would be gratefully received

thanks for your time 

You can give him the money and he can gift you the house. However it will still count as part of his estate for 7 years.

 Even if there's no consideration doesn't avoid the CGT liability. 

Oh not suggesting that, i just mean that it's a possibility to do so now if they choose.

Frankly they're better just waiting for inheritance. 

Jaap

princeofpounds said:

The main things you have to be wary of are:

- deprivation of assets
- IHT 7 year rule
-  upset siblings (?) who will find the estate diminished.

Generally-speaking, the closer you get to buying the property and the further away from gifting, the better. But this kind of thing requires proper estate planning to be honest; he needs to get a lawyer with expertise.

What actually was the 'deal' around the house? You have been vague. Was he holding the house informally in trust for you? Or were you tenants? So far all we know is that a) he bought it, b) you rented it, and c) he now wants you to get your names on the title... somehow. So that doesn't really tell us anything at all.

my siblings are ok with it, as they know I’ve essentially been paying for the house so there won’t be a challenge there, however...  

Officially we have been tenants. He’s declared it as rental income, which I suppose makes it more complicated as it is still part of his estate so when the time comes it could get complicated with regards to splitting the estate. He’s only in his early 60’s now so I guess he never really thought about it at the time and expected to be able to gift me the house without having to worry about the 7 years, then leave me a third of his remaining estate years later when he died. But as I say, and in his own words he can’t be certain of lasting another 14 years so wanted to make sure we got the house we’d paid for as well as a third of everything else. 

greatcrested

* So he wants you to have a third of his estate (equally with other 2 siblings) plus the house? Seems harsh on your siblings. You've been paying rent for somewhere to live. No different for them - I assume they too have been paying (rent or mortgage) for somewhere to live for 18 years. Still, you say they are happy.....

* capital gains tax. Whether he sells or gives you the property, he'll be liable for CGT on the market value increase as it's not been his main resdence

* if he keeps it, there's no CGT when he dies

* when he dies, Inheritance tax is based on value of his total estate, not on you, or what you inherit.

* if he gives you the property now, the market value will be included in his Estate if he dies within 7 years (though with tapering). You say his health has taken a turn for the worse, hence ASAP, so this plan will really not help with IHT.

* if he gives you the property and then needs care, the local authority may well include the value of the property when means testing him for eligibility for care costs. 'Deprivation of Assets'. Does he have other assets? Could he afford to fund his (potentially expensive) care privately? Again, given his poor health this is a serious consideration.

* If you/he do decide to transfer the property to your name, easiest way is to let the mortgage lander's solicitor do this at the same time that the mortgage is paid off. You provide the money, the soliciter removes the Charge (acting for the lender) and affects the transfer (acting for dad). Though a solicitor might suggest/insist that you appoint your own solicitor too (conflict of interest).

* As you will be 'buying' the property by paying off the mortgage, you'll pay Stamp Duty Land Tax on the amount involved.

All in all, my advice would be for your dad to write a will leaving you the house and splitting the remainder of the estate to you all equally, if that's what he wants. The issue might be if had to sell the house before dying eg for care funding, in which case a) you'd have already moved out and b) the bequest of the house would be nullified. But at least he'd still have had an asset to rely on in his old age.

snowcat75

Unfortunately it sound like you have missed the timescale to gift, with the 7 year rule.

There is a possibility you could defer the tax and put the charge onto the house, this means the tax would only become liable on the sale, although this is viewed with suspicion by HMRC, and not always possible, To do so your need a very decent and trusted accountant and a solicitor.

In certain cases it is possible to backdate transfers unto 5  years, but your need to be watertight on your reasoning and have everyone Accountant/Solicitor  and yourselves all with your ducks in a row if HMRC ask questions.

Alternative is pay IHT with your share of the estate, but that's always the painful option. 

macman

You need professional tax planning advice, not stuff you got off an internet forum.