Bank of parent capital gain worry.

silvercar

Sea_Shell said:

_Penny_Dreadful said:

Sea_Shell said:

_Penny_Dreadful said:

Wibble1937 said:

No advice sought at the time. Foolish in hindsight. But we hadn't planned on a global pandemic wiping out his income stream, delaying the process this long and distorting the housing market such that his tiny place would now be worth ridiculous money. At the original planned timescale things would have been OK all round. 

I'll bet you paid the higher rate of SDLT on the purchase too. You are  letting the tax tail wag the dog.  The more gain you make the higher the CGT liability.  Would you turn down a pay rise because it would mean paying more income tax?  No because come pay day that is still more money going into your pocket.  That's the same situation you have here, the more gain you make the more tax you will pay but ultimately that's still more money going into your pocket.

The tax efficient way to have done this would have been to set up a private mortgage with your partner's son so that he purchased the property in his own name.  That would have avoided the higher rate of SDLT and CGT. I know you've said you will leave things they are but there is no point burrowing your head in the sand as the general trajectory of house prices is upwards whilst CGT allowances and reliefs spiral downwards.

Your partner's son's income might have dropped but he's had 5 years worth of rent free living.  Perhaps it is time to address this and start charging him rent or you could still go down the private mortgage route and sell him the property at its current market value (I would take any Zoopla valuation with a pinch of salt) but that would leave you with a bit of a cash flow issue.  Alternatively you sell the property now on the open market and cash in.

How many bedrooms does this tiny place have?  If more than one could partner's son get a lodger to help with the cost of paying market rent or a private mortgage?

But surely that is only the case if they are able to sell the property FOR that new increased full market value.  

But the son cannot afford to pay them the going rate, and by what they've said, may only just be able to afford to buy it at the original price, not even able to cover the CGT.

So the OP won't have more money in their pocket after selling at "mates rates", and paying CGT.    If anything, they will be out of pocket!!

It's almost as if despite quoting my whole post you have not read the whole post.

I did read it.  What did I miss.

Would even a private mortgage arrangement mean CGT would be payable?   Or can they just choose to sell it cheap to avoid CGT?

A private mortgage arrangement originally would have meant the property didn’t now need to change hands, so no CGT would be due.

Sea_Shell

silvercar said:

Sea_Shell said:

_Penny_Dreadful said:

Sea_Shell said:

_Penny_Dreadful said:

Wibble1937 said:

No advice sought at the time. Foolish in hindsight. But we hadn't planned on a global pandemic wiping out his income stream, delaying the process this long and distorting the housing market such that his tiny place would now be worth ridiculous money. At the original planned timescale things would have been OK all round. 

I'll bet you paid the higher rate of SDLT on the purchase too. You are  letting the tax tail wag the dog.  The more gain you make the higher the CGT liability.  Would you turn down a pay rise because it would mean paying more income tax?  No because come pay day that is still more money going into your pocket.  That's the same situation you have here, the more gain you make the more tax you will pay but ultimately that's still more money going into your pocket.

The tax efficient way to have done this would have been to set up a private mortgage with your partner's son so that he purchased the property in his own name.  That would have avoided the higher rate of SDLT and CGT. I know you've said you will leave things they are but there is no point burrowing your head in the sand as the general trajectory of house prices is upwards whilst CGT allowances and reliefs spiral downwards.

Your partner's son's income might have dropped but he's had 5 years worth of rent free living.  Perhaps it is time to address this and start charging him rent or you could still go down the private mortgage route and sell him the property at its current market value (I would take any Zoopla valuation with a pinch of salt) but that would leave you with a bit of a cash flow issue.  Alternatively you sell the property now on the open market and cash in.

How many bedrooms does this tiny place have?  If more than one could partner's son get a lodger to help with the cost of paying market rent or a private mortgage?

But surely that is only the case if they are able to sell the property FOR that new increased full market value.  

But the son cannot afford to pay them the going rate, and by what they've said, may only just be able to afford to buy it at the original price, not even able to cover the CGT.

So the OP won't have more money in their pocket after selling at "mates rates", and paying CGT.    If anything, they will be out of pocket!!

It's almost as if despite quoting my whole post you have not read the whole post.

I did read it.  What did I miss.

Would even a private mortgage arrangement mean CGT would be payable?   Or can they just choose to sell it cheap to avoid CGT?

A private mortgage arrangement originally would have meant the property didn’t now need to change hands, so no CGT would be due.

Past tense?

Bookworm105

Sea_Shell said:

_Penny_Dreadful said:

Sea_Shell said:

_Penny_Dreadful said:

Wibble1937 said:

No advice sought at the time. Foolish in hindsight. But we hadn't planned on a global pandemic wiping out his income stream, delaying the process this long and distorting the housing market such that his tiny place would now be worth ridiculous money. At the original planned timescale things would have been OK all round. 

I'll bet you paid the higher rate of SDLT on the purchase too. You are  letting the tax tail wag the dog.  The more gain you make the higher the CGT liability.  Would you turn down a pay rise because it would mean paying more income tax?  No because come pay day that is still more money going into your pocket.  That's the same situation you have here, the more gain you make the more tax you will pay but ultimately that's still more money going into your pocket.

The tax efficient way to have done this would have been to set up a private mortgage with your partner's son so that he purchased the property in his own name.  That would have avoided the higher rate of SDLT and CGT. I know you've said you will leave things they are but there is no point burrowing your head in the sand as the general trajectory of house prices is upwards whilst CGT allowances and reliefs spiral downwards.

Your partner's son's income might have dropped but he's had 5 years worth of rent free living.  Perhaps it is time to address this and start charging him rent or you could still go down the private mortgage route and sell him the property at its current market value (I would take any Zoopla valuation with a pinch of salt) but that would leave you with a bit of a cash flow issue.  Alternatively you sell the property now on the open market and cash in.

How many bedrooms does this tiny place have?  If more than one could partner's son get a lodger to help with the cost of paying market rent or a private mortgage?

But surely that is only the case if they are able to sell the property FOR that new increased full market value.  

But the son cannot afford to pay them the going rate, and by what they've said, may only just be able to afford to buy it at the original price, not even able to cover the CGT.

So the OP won't have more money in their pocket after selling at "mates rates", and paying CGT.    If anything, they will be out of pocket!!

It's almost as if despite quoting my whole post you have not read the whole post.

I did read it.  What did I miss.

Would even a private mortgage arrangement mean CGT would be payable?   Or can they just choose to sell it cheap to avoid CGT?

private mortgage would have allowed the son to be the owner from the outset, thereby negating CGT as he would be entitled to full private residence relief on his main home

depending on whether interest was charged on the mortgage, civil partners may (or may not) be liable for income tax on the interest paid. There would be no tax implications on repayment of the capital element.

However, the situation is not that. The civil partners are the owners and are liable for CGT
Unless, as a few have mentioned, they can get a solicitor to agree that the child was the beneficial owner from the outset, and so cash paid now from child to civil partners is a capital repayment (with/without taxable interest).