Deposit, Stamp Duty and Tax

HappyDragon21

Our situation is that my mother  will be selling her house, and we will be using the proceeds of that sale as a deposit for a house that my partner and I will be paying the mortgage on.

My mother will be living with us.

My mother’s house is worth approximately £340,000 and we will be buying a property worth approximately £500,000

My partner and I are first time buyers.

I would like to know:

What rate of stamp duty we will need to pay (first time buyers or standard).

From what I can ascertain, if my mother’s name is not on the deeds then we pay the first time buyer’s rate.

However, if this is the case, and my mother’s name is not on the deeds or mortgage, then is the money she is putting into the house classed as having been given to us by her, and would it therefore be taxable as income?

user1977

It isn't income or taxable. Have you checked that you can get a mortgage with that set-up?

HappyDragon21

As far as I am aware we can. No one has raised the mortgage as being problematic. A mortgage advisor has said its OK and when I inquired at the bank they didn't raise it as a problem. My mother needs to sign an Occupancy form. 
Why do you might that be a problem?

Mark_d

So you mother is gifting you a large amount of money.  With your enlarged bank balance, you will then buy a property with your partner (you mother does not own any share of the property).  As you and your partner are first time buyers, you pay stamp duty at the rate for first time buyers.  In this scenario the money is an outright gift, so you will pay no tax if your mother lives for a further 7 years.  However, for the money to be treated as gifted, your mother would need to pay market-rate rent to you for the accommodation you provide to her.

If your mother pays no rent then the money is not gifted at this point.  Inheritance tax would be due when she dies but this should be small as the IHT tax free amount is I think £325,000.

This money from your mother is not income and could not be subject to income tax

HappyDragon21

user1977- back to my first question, does that mean that if my mother's name is not on the deeds, we only have to pay first time buyer's SDLT?
I phoned the SDLT gov helpline, but the lady who answered wasn't sure.

DE_612183

If the property is £500k you'll only pay 5% on the £75k over 425.

Are you definitely First Time Buyers?

I only ask, as most FTBs are usually 20s - 30s - so if your mum is in her 50s or even 60s thats a long time for her to be living with you....

HappyDragon21

Mark_d said:

So you mother is gifting you a large amount of money.  With your enlarged bank balance, you will then buy a property with your partner (you mother does not own any share of the property).  As you and your partner are first time buyers, you pay stamp duty at the rate for first time buyers.  In this scenario the money is an outright gift, so you will pay no tax if your mother lives for a further 7 years.  However, for the money to be treated as gifted, your mother would need to pay market-rate rent to you for the accommodation you provide to her.

If your mother pays no rent then the money is not gifted at this point.  Inheritance tax would be due when she dies but this should be small as the IHT tax free amount is I think £325,000.

This money from your mother is not income and could not be subject to income tax

Sorry, I am really confused.
Have I got this right?

• My mother is eldery so she may not live for 7 years. In which case we would have to inheritance tax on anything over £325,000 that she has put into the house.

• I thought there was a limit on how much you could gift someone in any given year. 
• I don't understand the difference in the implications regarding whether my mother pays us rent or not.

user1977

HappyDragon21 said:

Mark_d said:

So you mother is gifting you a large amount of money.  With your enlarged bank balance, you will then buy a property with your partner (you mother does not own any share of the property).  As you and your partner are first time buyers, you pay stamp duty at the rate for first time buyers.  In this scenario the money is an outright gift, so you will pay no tax if your mother lives for a further 7 years.  However, for the money to be treated as gifted, your mother would need to pay market-rate rent to you for the accommodation you provide to her.

If your mother pays no rent then the money is not gifted at this point.  Inheritance tax would be due when she dies but this should be small as the IHT tax free amount is I think £325,000.

This money from your mother is not income and could not be subject to income tax

• I thought there was a limit on how much you could gift someone in any given year.

No, you can gift as much as you like. But (depending on the amounts and timescales) some of it may be treated as part of the gifter's estate for IHT purposes when they die.

Mortgage lenders tend to be wary about situations which involve granny being evicted in the event they want to repossess, in case she claims she was duped into giving up her rights by her family, or that it just generally looks bad from a PR point of view.

HappyDragon21

DE_612183 said:

If the property is £500k you'll only pay 5% on the £75k over 425.

Are you definitely First Time Buyers?

I only ask, as most FTBs are usually 20s - 30s - so if your mum is in her 50s or even 60s thats a long time for her to be living with you....

This is the first time that my partner and I have bought a house. We have always rented. 

sammyjammy

You may need to consider deprivation of assets for your mother as well.

kingstreet

HappyDragon21 said:

Mark_d said:

So you mother is gifting you a large amount of money.  With your enlarged bank balance, you will then buy a property with your partner (you mother does not own any share of the property).  As you and your partner are first time buyers, you pay stamp duty at the rate for first time buyers.  In this scenario the money is an outright gift, so you will pay no tax if your mother lives for a further 7 years.  However, for the money to be treated as gifted, your mother would need to pay market-rate rent to you for the accommodation you provide to her.

If your mother pays no rent then the money is not gifted at this point.  Inheritance tax would be due when she dies but this should be small as the IHT tax free amount is I think £325,000.

This money from your mother is not income and could not be subject to income tax

Sorry, I am really confused.
Have I got this right?

• My mother is eldery so she may not live for 7 years. In which case we would have to inheritance tax on anything over £325,000 that she has put into the house.

• I thought there was a limit on how much you could gift someone in any given year. 
• I don't understand the difference in the implications regarding whether my mother pays us rent or not.

If she doesn't pay market rent, the gift remains in her estate for IHT purposes because she is deemed as continuing to benefit from it - it's a "gift with reservation."

As far as the mortgage is concerned, many lenders won't accept the circumstances you describe - an occupier contributing to the deposit but not being party to mortgage or ownership. You may have inadvertently settled on one without this issue, but check.