Buying parents property below market value

dcc0311

We currently live in a large farm property with my mother. We have converted on side of the house into living areas for ourselves whilst my mom lives in the other side. The property is still one house but just with separate living areas. 

My mother is getting close to retirement and would like to top up her pot by releasing equity that is in the property by selling it to us at under market value. 

What is confusing at the minute is the rules around this. Although there is plenty of reading it all points to doing this as a second home and allowing parents to live in it. this wouldn't be a second home for us as we don't currently have any property.

We have spoken to a few family solicitors that we have used in the past and neither of them have been able to get us an answer on what the rules are when we are currently all living in the property. 

The estate in theory will fall below the IHT threshold as we have my fathers allowance that wasn't used when you take into account what we will pay for the house.

For context the property is around £850k, we are looking to pay £400k. 

the intention is for my mother not to pay any rent.

If someone can help and give guidance that would be great. 

theartfullodger

HMRC (obviously..) have the power to record and tax transactions at genuine market value rather than permitting tax fiddles,.... (Fiddles, I'm not suggesting evasion, obvs...)

eddddy

Just to double check - are you saying this...

• Your mother owns a property worth £850k
• She wants to sell the entire property to you for £400k
• She wants to continue to live in part of the property after the sale (rent free)

Or something else?

Has somebody suggested that there's an issue because you are all currently living in the property?

dcc0311 said:

We have spoken to a few family solicitors that we have used in the past and neither of them have been able to get us an answer on what the rules are when we are currently all living in the property. 

Perhaps you've been asking questions in a rather confusing way. Instead of asking "what the rules are when we are currently all living in the property", just explain what you want to do (i.e. the 3 steps above) - and ask your solicitor for their advice.

km1500

Your mother can sell the property to you for whatever she wants - she can even gift it to you.

Stamp duty will be payable on the real value though if sold, but no stamp duty if gifted.

If you end up owning a bit each then you will all be on the entry at the land registry. If she sells you the whole then only you will be

If your mother's estate is below IHT threshold then you can all live there with no tax implications.

The only possible problem might be if your mother ever decides to apply for means tested benefits

Simplest way forward is your mother gifts the whole house to you, the house becomes yours, no stamp duty, your mother lives there as - well your mother! 

kingstreet

km1500 said:

Your mother can sell the property to you for whatever she wants - she can even gift it to you.

Stamp duty will be payable on the real value though if sold, but no stamp duty if gifted.

If you end up owning a bit each then you will all be on the entry at the land registry. If she sells you the whole then only you will be

If your mother's estate is below IHT threshold then you can all live there with no tax implications.

The only possible problem might be if your mother ever decides to apply for means tested benefits

Simplest way forward is your mother gifts the whole house to you, the house becomes yours, no stamp duty, your mother lives there as - well your mother! 

SDLT is charged on the consideration, not the value. If £400k is paid, SDLT is based on that £400k.

kingstreet

dcc0311 said:

We currently live in a large farm property with my mother. We have converted on side of the house into living areas for ourselves whilst my mom lives in the other side. The property is still one house but just with separate living areas. 

My mother is getting close to retirement and would like to top up her pot by releasing equity that is in the property by selling it to us at under market value. 

What is confusing at the minute is the rules around this. Although there is plenty of reading it all points to doing this as a second home and allowing parents to live in it. this wouldn't be a second home for us as we don't currently have any property.

We have spoken to a few family solicitors that we have used in the past and neither of them have been able to get us an answer on what the rules are when we are currently all living in the property. 

The estate in theory will fall below the IHT threshold as we have my fathers allowance that wasn't used when you take into account what we will pay for the house.

For context the property is around £850k, we are looking to pay £400k. 

the intention is for my mother not to pay any rent.

If someone can help and give guidance that would be great. 

If you need a mortgage many lenders won't be happy with the gifted equity and vendor continuing to live there. If there are any agricultural restrictions, that may also cause problems. A decent broker would be the best place to start if a mortgage is required.

user1977

theartfullodger said:

HMRC (obviously..) have the power to record and tax transactions at genuine market value rather than permitting tax fiddles,.... (Fiddles, I'm not suggesting evasion, obvs...)

What "tax fiddle" do you think might potentially be involved here?

stuhse

Is 'we' you and your wife/husband ?  Do 'we' currently pay her rent to live there ?

Brie

If she needs any care assistance from the local authority they will consider she has deliberately deprived herself of a major asset if she gifts you the house or sells it below market value.  This wouldn't be an issue (I believe) if she sold you, say, half the property for half the value of the property.  

QrizB

user1977 said:

theartfullodger said:

HMRC (obviously..) have the power to record and tax transactions at genuine market value rather than permitting tax fiddles,.... (Fiddles, I'm not suggesting evasion, obvs...)

What "tax fiddle" do you think might potentially be involved here?

IHT avoidance, if elderly mother dies in the next seven years?

user1977

QrizB said:

user1977 said:

theartfullodger said:

HMRC (obviously..) have the power to record and tax transactions at genuine market value rather than permitting tax fiddles,.... (Fiddles, I'm not suggesting evasion, obvs...)

What "tax fiddle" do you think might potentially be involved here?

IHT avoidance, if elderly mother dies in the next seven years?

"Getting close to retirement" didn't suggest to me anyone was predicting her imminent demise.