Selling home to parent

Bookworm225

1spiral said:

saajan_12 said:

1spiral said:

Thanks for all the comments.

I am aware that SDLT can be reclaimed if the property is sold within 3 years but I think I'm right in stating that if not sold within 9 months, CGT starts accruing. Is that correct?

Although I'd expect to sell within 3 years, 9 months may be a bit more challenging.

My first port of call would be to try and sell the property as that is by far the simplest and neatest option.

My post at the start is really to find what options are open to me if a quick sale is not on the cards.

Yes, but its not all or nothing after 9 months.. you only pay for the % of the gain that corresponds to the % of months you didn't live there (not counting the last 9 months). So if you sell after 12 months, that's 3 months extra out of the whole x years you lived there. Plus there's a 3k allowance to take off (each if you and your wife jointly own it). Depending on the numbers involved, that % of CGT might be less than the legal costs etc of an extra transfer.

Thanks for this, this has put my mind at ease a bit more. We have been in the house about 32 years with a gain of about 300K so a quick calc seems to indicate that 11% unoccupied time (about 3 years over the 9 months free so the SDLT reclaim would run out before CGT would be payable) equates to our 2x3K allowance @ 18%CGT rate. Does that seem correct?

not sure you have understood that correctly. I will assume "we" means it is owned by you and another person 

you have currently owned the ("old") property for 32 years. Let us assume it has been your main/only home for those 32 years, so all of that time is exempt from CGT

you move out of it and buy the new property 

you sell the "old" one 2 years 9 months after you moved out of it, thus making your total ownership period 34 years and 9 months of which it is exempt for the 32 years when you lived there plus the final 9 months of your ownership when you no longer lived there. The remainder of the ownership (34.9-32.9 = 2 years) is liable for CGT. 

9 months as a decimal is 0.75, so the liable period equates to  2/34.75 = 5.8% of the total ownership 

gain 300k split between the 2 owners
CGT therefore £150k x 5.8% = £8,633 less CGT allowance £3k = £5,633 net taxable gain 
CGT payable best case all at 18% 5,633 x .18 = £1,553 

you would each need to pay tax of £1,553 if selling it 2 years 9 months after moving out of it if the overall gain was indeed £300k. You can however deduct legal fees incurred in purchasing and selling it plus estate agent fee on the sale, so the gain would be less than 300k to start with. 
trivial sum or none  


Obviously if you sell it more than 3 years after moving out you will not get the SDLT refund so that would make that scenario much more expensive.

1spiral

Many thanks @Bookworm225 for the detailed calculation. Using your template and Excel I have therefore calculated that the crossover point where CGT becomes payable is 17 months which will definitely be ample time to sell the property.

I have pasted your formula below and updated with the 17 month figures.

you sell the "old" one 1 years 5 months after you moved out of it, thus making your total ownership period 33 years and 5 months of which it is exempt for the 32 years when you lived there plus the final 9 months of your ownership when you no longer lived there. The remainder of the ownership (8 months = .667 years) is liable for CGT.

so the liable period equates to  .667/33.42 = 1.995% of the total ownership

gain 300k split between the 2 owners
CGT therefore £150k x 1.995% = £2993 CGT allowance £3k therefore no gain achieved.

Thanks again to all that have helped me through this process. After considering the options, and understanding the maths, I will proceed along the simple route of putting the house on the market when the time comes.

Bookworm225

1spiral said:

Many thanks @Bookworm225 for the detailed calculation. Using your template and Excel I have therefore calculated that the crossover point where CGT becomes payable is 17 months which will definitely be ample time to sell the property.

I have pasted your formula below and updated with the 17 month figures.

you sell the "old" one 1 years 5 months after you moved out of it, thus making your total ownership period 33 years and 5 months of which it is exempt for the 32 years when you lived there plus the final 9 months of your ownership when you no longer lived there. The remainder of the ownership (8 months = .667 years) is liable for CGT.

so the liable period equates to  .667/33.42 = 1.995% of the total ownership

gain 300k split between the 2 owners
CGT therefore £150k x 1.995% = £2993 CGT allowance £3k therefore no gain achieved.

Thanks again to all that have helped me through this process. After considering the options, and understanding the maths, I will proceed along the simple route of putting the house on the market when the time comes.

yes, although one assumes that the 300k gain is therefore already net of fees/costs? 
1% - 3%+ commission for selling will "buy" you even more time if still to be knocked off the gain, as the house must be selling for a (much) larger figure if the gain itself is 300k even allowing for the very long 32 year ownership

pedantically when reporting the calculation to HMRC you should use months (or days) not years for the % working so 8/401 = 1.995%

Ditzy_Mitzy

Devil's advocate: how much trust does the OP wish to place in his mother?  She would become the legal owner of the house and could, if she wished, do anything from letting it to the tenants from Hell to selling it to a romance fraudster for twenty pence.  She could also decide that she quite likes the place, move in herself and ditch her existing house.  

Who's going to be responsible for the rates, bills, insurance, maintenance and so on?  What if the house fails to sell within the expected period and becomes a financial burden?  Will the OP sub the mother for all that, and continue to do so indefinitely?  Even something as banal as a burst pipe could leave one or other on the hook for thousands.  

The whole proposal is messy.  Just sell up and pay the tax.  It'll be cheaper.  Don't forget, too, that the proposed double sale will end up doubling all the sundry costs: conveyancing, title transfer and the rest...  

saajan_12

1spiral said:

Many thanks @Bookworm225 for the detailed calculation. Using your template and Excel I have therefore calculated that the crossover point where CGT becomes payable is 17 months which will definitely be ample time to sell the property.

Sounds right, though if the property increases further in the next 17 months, it'll be higher. However if you miss that perfect crossover point, CGT would just gradually increase. Ie if you sell after 18 months, then you just pay for 1 month ~= 0.2% of gain ~= £67 @ 18% rate. 

Unlike stamp duty which is all or nothing if you miss the deadline.