Buying a house we rent from my Parents

KwayzeeWabbitt123

Hi,

We have been renting a house from my father for the last 10 years and are now in a position to make an offer to buy it from him. He would not have a Estate agent fees per say or a large solicitor bill for the sale so would make a saving there, but I believe ho would still have a substantial CGT bill to pay?

The details are he has owned the property since the very early 90's, he inherited it from his parents. He has never lived in it himself but has rented it out since then. We have rented it for the last 10 years and would like to make a lower than market value offer to buy it (-30k). Property is valued at 230k we would offer 200k.

Would he still have to pay CGT at full market value and how would it be calculated on value difference from so long ago?

Thanks

Kwayzee Wabbitt

p00hsticks

KwayzeeWabbitt123 said:

Would he still have to pay CGT at full market value and how would it be calculated on value difference from so long ago?

Yes, as you are a close relative it won't be an 'arms length' transaction and so for CGT calculations the true market value needs to be used - in your shoes I'd probably offer to pay an independent RICS surveyor to provide one - it'll probably cost a few hundred pounds, depending on where you are in the country. As you say he inherited the property presumably a valuation was done for probate purposes at the time ? That gives the starting position and you can then use a CGT calcuator to work out how much they'd need to pay.

https://www.gov.uk/tax-sell-property/work-out-your-gain

saajan_12

KwayzeeWabbitt123 said:

Hi,

We have been renting a house from my father for the last 10 years and are now in a position to make an offer to buy it from him. He would not have a Estate agent fees per say - correct, that would be a 2-4k saving on a 200k property 
or a large solicitor bill for the sale so would make a saving there, - are you buying with a mortgage? If so, then would still need all the usual conveyancing, so no saving for being family. You'd maybe save on a full survey, but no change for father. 
but I believe ho would still have a substantial CGT bill to pay? - yes, based on the difference between probate value and market value (not the sale price as you're family)

The details are he has owned the property since the very early 90's, he inherited it from his parents. He has never lived in it himself but has rented it out since then. We have rented it for the last 10 years and would like to make a lower than market value offer to buy it (-30k). Property is valued at 230k we would offer 200k. - is he amenable to giving you a gift of the 30k? There's little savings from being family, so its mostly just an outright gift. 

Would he still have to pay CGT at full market value and how would it be calculated on value difference from so long ago? - whats so long ago? There will be a value he inherited at, and you'd need a recent valuation to base the disposal value on. 

Thanks

Kwayzee Wabbitt

Comments in line.. there's limited savings especially if you'd buy with a mortgage, so any discount would really just be a gift if he's happy to do that. 

The alternative is (depending on father's plans and other children / partners) but can you continue renting and ultimately inherit the house? 

canaldumidi

As replies above. Just to add the 'gift' of £30K would potentially be subject to Inheritance Tax if dad died wihin 7 years.

Dad's Income tax liabilty for the property would of course end with your purchase.

getmore4less

canaldumidi said:

As replies above. Just to add the 'gift' of £30K would potentially be subject to Inheritance Tax if dad died wihin 7 years.

Dad's Income tax liabilty for the property would of course end with your purchase.

VERY unlikely the gift will be taxable.

Most common case is the gift uses up some nil rate band and increases the potential IHT on the estate.

canaldumidi

getmore4less said:

canaldumidi said:

As replies above. Just to add the 'gift' of £30K would potentially be subject to Inheritance Tax if dad died wihin 7 years.

Dad's Income tax liabilty for the property would of course end with your purchase.

VERY unlikely the gift will be taxable.

Most common case is the gift uses up some nil rate band and increases the potential IHT on the estate.

You're right of course, but as Inheriance Tax had not been mentioned,  I was simply highlighting the fact there there was potential for an IHT liability resulting from a gift.

To get specific one would also have to detail the taper relief rules, but in the context of this thread and the OP's query it's enough just to mention the potential. OP can investigate further if he chooses!