Help re gifting and Capital gains tax

babsica

Hi  In 2004 I re mortgaged my house for £116000 on Interest only mirtgage to help my Daughter and Grandaughter to buy a property as she was bad debited from her p-revious property that she had with her partner and it had to be sold.She had £40000 which we had to  put down as part of the mortgage agreement..The property was £1550000 and was in a very poor state of repair .A friend did most of the work and she paid him a nominal amount and she bought all the fittings ie radiators boiler kitchen bathroom ect Unfortunately she didnt know that she needed to keep theses receipts as proof of what was spent.
The property is currently worth £265000 ,My Daughter and Grandaughter  have lived in it since 2006 as her friend took a long time to get it habitable
I will be 70 in Feb 2021 and now have to pay off the mortgage.The plan would be as told by mortgage broker was for my Daughter to get a mortgage so she can pay off my mortgage and the rest is gifted to her .She has always paid the mortgage which as stated is interest only.Added to this she paid £40000 deposit originally.
How do we stand re Capital Gains Tax any help appreciated

foxy-stoat

babsica said:

Hi  In 2004 I re mortgaged my house for £116000 on Interest only mirtgage to help my Daughter and Grandaughter to buy a property as she was bad debited from her p-revious property that she had with her partner and it had to be sold.She had £40000 which we had to  put down as part of the mortgage agreement..The property was £1550000 and was in a very poor state of repair .A friend did most of the work and she paid him a nominal amount and she bought all the fittings ie radiators boiler kitchen bathroom ect Unfortunately she didnt know that she needed to keep theses receipts as proof of what was spent.
The property is currently worth £265000 ,My Daughter and Grandaughter  have lived in it since 2006 as her friend took a long time to get it habitable
I will be 70 in Feb 2021 and now have to pay off the mortgage.The plan would be as told by mortgage broker was for my Daughter to get a mortgage so she can pay off my mortgage and the rest is gifted to her .She has always paid the mortgage which as stated is interest only.Added to this she paid £40000 deposit originally.
How do we stand re Capital Gains Tax any help appreciated

I assume the originally price wasn't £1,550,000 but £155,000.
If she isn't selling it then there would be no capital gains tax to pay.  If its her primary, and only, home/property then there still won't be any capital gains tax to pay when she does sell it.

dimbo61

So in the last 16 years have you made any overpayments on the interest only mortgage ? 
You are hoping your daughter and granddaughter can get a £116,000 mortgage to pay off the Interest only mortgage ?
Can you start overpaying the IO mortgage yourself ?
Every little penny helps 

[Deleted User]

babsica said:

Hi  In 2004 I re mortgaged my house for £116000 on Interest only mirtgage to help my Daughter and Grandaughter to buy a property as she was bad debited from her p-revious property that she had with her partner and it had to be sold.She had £40000 which we had to  put down as part of the mortgage agreement..The property was £1550000 and was in a very poor state of repair .A friend did most of the work and she paid him a nominal amount and she bought all the fittings ie radiators boiler kitchen bathroom ect Unfortunately she didnt know that she needed to keep theses receipts as proof of what was spent.
The property is currently worth £265000 ,My Daughter and Grandaughter  have lived in it since 2006 as her friend took a long time to get it habitable
I will be 70 in Feb 2021 and now have to pay off the mortgage.The plan would be as told by mortgage broker was for my Daughter to get a mortgage so she can pay off my mortgage and the rest is gifted to her .She has always paid the mortgage which as stated is interest only.Added to this she paid £40000 deposit originally.
How do we stand re Capital Gains Tax any help appreciated

As far as I can tell you remortgaged your own home to lend your daughter £116,000 to buy her own home along with £40,000 she already had.  Your daughter is the sole legal and beneficial owner of her home.  Neither of you are selling your home.  CGT doesn't come into this situation at all.

oldbikebloke

ok lets start again as your facts are jumbled

- she is not selling the property she lives in. So there is no CGT to be considered for her at all

- we will assume she is not a named party on the mortgage for the property you live in ? 
Furthermore, we will assume she is not a legal owner of your property, nor is there any entitlement (in writing) for her to get any money from it if you sell it, nor is she being given part ownership of it by you in return for paying off that mortgage. 

the fact she now wishes to borrow money against her own property in order to pay off a debt on her father's property is irrelevant re CGT since nothing is being disposed of to trigger CGT in the first place.

The fact some debts are being rearranged between you and her has no tax implications. So your reference to "the rest is a gift to her" is meaningless since it is not your money that is being spent on paying off your mortgage, it is hers, she is the one making a gift to you. There is no balance remaining to be gifted! It is her own (borrowed) money, so if she has borrowed more than she needs to repay your mortgage the rest is nothing to do with you 


That said...
her own position on her own property is slightly different when she sells it since between 2004 - 2006 she did not live in it, although purchased with the obvious intent it would be her main home once works finished. Upon purchase you are allowed 12 months to complete "works" and still be entitled to private residence relief even though not living there. She has obviously exceed that so, of the 16 years ownership to date, 1/16 is ineligible for CGT relief.

Unlikely the works relate to capital expenditure anyway so missing receipts largely irrelevant. But were she to sell it today she would have zero CGT to pay anyway.
Gain 100kx 1/16 = £6,250 liability but that is obviously covered in full by her CGT allowance of 12,300 (assuming she has no other gains that tax year to use that sum up) leaving her with zero net taxable gain and no CGT payable.

saajan_12

babsica said:

Hi  In 2004 I re mortgaged my house for £116000 on Interest only mirtgage to help my Daughter and Grandaughter to buy a property as she was bad debited from her p-revious property that she had with her partner and it had to be sold.She had £40000 which we had to  put down as part of the mortgage agreement..The property was £1550000 and was in a very poor state of repair .A friend did most of the work and she paid him a nominal amount and she bought all the fittings ie radiators boiler kitchen bathroom ect Unfortunately she didnt know that she needed to keep theses receipts as proof of what was spent.
The property is currently worth £265000 ,My Daughter and Grandaughter  have lived in it since 2006 as her friend took a long time to get it habitable
I will be 70 in Feb 2021 and now have to pay off the mortgage.The plan would be as told by mortgage broker was for my Daughter to get a mortgage so she can pay off my mortgage and the rest is gifted to her .She has always paid the mortgage which as stated is interest only.Added to this she paid £40000 deposit originally.
How do we stand re Capital Gains Tax any help appreciated

Just to unpick whats happened and the current situation:
- you gave / loaned daughter £116k secured on your house. 
- Daughter paid £155k for another property outright (116k from you and 39k from her own money) in 2004. 
- Daughter lived there between 2006-present, and looking to get a mortgage on her property to pay back your loan. 

Anything I need to correct in the above?
Basically, Capital Gains Tax is on the appreciation when you realise a gain, ie sell an investment. If no one's selling anything at the moment, no CGT is due. When daughter does sell, she would get full or partial relief on CGT for the period she lived there as her private residence. Some of the initial period of refurbishment MIGHT be counted as if she were living there (usually upto 12 months, sometimes longer). If the private residence relief doesn't fully cover the CGT, there is also an ~12k allowance. 

Re costs of refurbishment, only capital expenses are allowed - ie things that would add value, not just regular maintenance. The receipts may not matter if the CGT is fully covered by the above allowances. 
Finally, CGT is calculated in months, not years, so would need more precise dates to help further. 

greatcrested

There does seem to be some element of a gift from you to her, though it is unclear how much.

However she is now planning to return some of that, so in effect it was not (all) a gift - it was a loan which is now being partly repaid.

The amount that she is not repaying to you, then, was a gift.

As a gift, it will be included for Inheritance tax purposes in your Estate should you die within 7 years (reducing if you survive 3 or 5 years).

Capital Gains Tax is as explained above irrelevant.