Gifts and Inheritance and buying a property

Advice4House

Hi, I’d really appreciate some advice.

My parents own a mortgage-free property worth under £600,000. My wife and I own a separate property with an existing mortgage.

We’re planning to buy a larger home for all four of us to live in. To do this, we intend to:

• Sell my parents’ property and use the equity toward the new purchase.

• Rent out our current home by converting the mortgage to a buy-to-let.

• Take out a new mortgage on the new property, which would be owned in my wife’s and my name, with my parents living with us.

Could you advise on any potential tax implications, including capital gains tax or inheritance tax considerations?

Thanks in advance!

Bookworm105

money from parents will remain within their estate for IHT purposes as a gift with reservation (GWR) until death as they will continue to derive a benefit from it by virtue of living in the property they "paid" for (but don't own)

the BTL will obviously be liable for CGT as it will no longer be your main home, so that will give a % of time out of total ownership when calculating how much of the gain will be taxable. Read up on Private Residence Relief

SiliconChip

What do you think is the benefit of letting your current home rather than selling it and using the equity in the new property? Do you have experience of running a letting business with the many associated legal responsibilities?

Hoenir

Are your parents happy to lose control of their money? 

poseidon1

Advice4House said:

Hi, I’d really appreciate some advice.

My parents own a mortgage-free property worth under £600,000. My wife and I own a separate property with an existing mortgage.

We’re planning to buy a larger home for all four of us to live in. To do this, we intend to:

• Sell my parents’ property and use the equity toward the new purchase.

• Rent out our current home by converting the mortgage to a buy-to-let.

• Take out a new mortgage on the new property, which would be owned in my wife’s and my name, with my parents living with us.

Could you advise on any potential tax implications, including capital gains tax or inheritance tax considerations?

Thanks in advance!

You have not indicated how your parents £600k is to be treated for the new purchase . An interest free loan to be protected by a 2nd charge or an equitable interest ( via a Form A Restriction with the land registry) sitting behind the legal ownership of you and wife? I am assuming at this point your parents are not  purporting to gift the proceeds outright.

However, the mortgage lender will be asking that specific question ie have your parents made a gift, loan, or joint equitable ownership, this will then have a bearing on  the IHT outcome going forward in relation to the jointly occupied home.

If you have not thought through this aspect of your parent's participation in this 'arrangement ' tax at this stage is a secondary consideration.

Keep_pedalling

Your parents would be very foolish to do this. What happens if living together does not work out well? What happens if you pre-decease them, What happens if you go bankrupt, what happens if you divorce? So many things that could go wrong and leave the homeless.