CGT on transferred property

ditzy_smartguy

Hi all,

I'm after a bit of advice.

My mum is wanting to transfer her property (only residence, owned in full, total value c. £85k) to my finacee, so that she can draw some equity via a mortgage to pay off a few debts, then sell with a view to buying my mum a bungalow with the remaining equity as a deposit plus a larger mortgage which she desperaly needs thanks to ailing health.

A few key facts:
We can't get a bungalow around here for less than £170k otherwise it would obviously just be a straight sell with no need to involve the fiancee.
Fiancee doesn't have a mortgage and isn't on mine
Salary without debts would allow a mortgage on her own of c. £200k, she won't be able to get a mortgage with current debts (thanks to ex husband everything was in her name) so really needs the equity from mum's house to pay these off

I've assumed that if mum sells and then "gifts" the equity to fiancee so she can subsequently pay the debts and then buy her a bungalow there's tax implications to the gifted money which is why we're thinking transfer of equity would be prefereable 

However, we're really confused as to how CGT applies when the house sells, or if it even does? 

saajan_12

ditzy_smartguy said:

Hi all,

I'm after a bit of advice.

My mum is wanting to transfer her property (only residence, owned in full, total value c. £85k) to my finacee, so that she can draw some equity via a mortgage to pay off a few debts, then sell with a view to buying my mum a bungalow with the remaining equity as a deposit plus a larger mortgage which she desperaly needs thanks to ailing health.

A few key facts:
We can't get a bungalow around here for less than £170k otherwise it would obviously just be a straight sell with no need to involve the fiancee.
Fiancee doesn't have a mortgage and isn't on mine
Salary without debts would allow a mortgage on her own of c. £200k, she won't be able to get a mortgage with current debts (thanks to ex husband everything was in her name) so really needs the equity from mum's house to pay these off

I've assumed that if mum sells and then "gifts" the equity to fiancee so she can subsequently pay the debts and then buy her a bungalow there's tax implications to the gifted money which is why we're thinking transfer of equity would be prefereable 

However, we're really confused as to how CGT applies when the house sells, or if it even does? 

To clarify the plan
- Financee currently has debts of (say) 30k, and gets a 30k mortgage on the current property to pay off the debts
- Mum continues living in the property? With a gifted deposit from the person still living there, most lenders would refuse
- Fiancee sells the property (55k equity), and buys a bungalow (170k), mum moves the same day? 
- Mortgage: regulated BTL for 115k as the property will be rented to family
- Who then owns the property? How is mum protected incase you break up or fiancee loses her job? 

Cant see it working before you even get to taxes. Can you increase your borrowing on your property to raise the money for the debts? 
Can mum get a mortgage herself? 

ditzy_smartguy

Thanks for replying so quickly.

Existing property (deeds etc) will be fully transferred to fiancee 
Fiancee will take out mortgage against property to pay debts - mum will remain in the property (regulated BTL?) until it's sold
House will be put on the market
Equity from sale will be used as deposit (along with any additional savings we're accrued through not paying off debts) for a bungalow with reg BTL mortgage
Fiancee will own the property - will be wife in early 2026

Can you increase your borrowing on your property to raise the money for the debts? - no, only £15k equity in my property
Can mum get a mortgage herself? No, she's 74

We just can't see any other way to be able to get mum a bungalow, short of selling up and just decimating the equity in renting instead (1 bed's a c.£850/month here and in VERY high demand) which I think will put her more at risk of instability and financial issues i.e rent increases etc than the other half losing her job/us seperating. 

_Penny_Dreadful

ditzy_smartguy said:

Thanks for replying so quickly.

Existing property (deeds etc) will be fully transferred to fiancee 
Fiancee will take out mortgage against property to pay debts - mum will remain in the property (regulated BTL?) until it's sold
House will be put on the market
Equity from sale will be used as deposit (along with any additional savings we're accrued through not paying off debts) for a bungalow with reg BTL mortgage
Fiancee will own the property - will be wife in early 2026

Can you increase your borrowing on your property to raise the money for the debts? - no, only £15k equity in my property
Can mum get a mortgage herself? No, she's 74

We just can't see any other way to be able to get mum a bungalow, short of selling up and just decimating the equity in renting instead (1 bed's a c.£850/month here and in VERY high demand) which I think will put her more at risk of instability and financial issues i.e rent increases etc than the other half losing her job/us seperating. 

This plan is ludicrous. 

@saajan_12 has already pointed out the pitfall of getting a mortgage using gifted equity from someone who will continue to live in the property.  Never mind CGT, if your financee doesn't manage to pull this off before she becomes your wife, the purchase of the bungalow will be subject to the higher rate of SDLT (assuming England or Northern Ireland) which would be an additional 5% of SDLT, and to be honest I don't see this plan working from a mortgage point of view.  Perhaps one of the mortgage brokers who regularly posts on the Mortgages and Endowments board would take a different view.

Turning unsecured debt into debt secured against the roof over your mother's head is a terrible idea.  If your fiancee is struggling with debt then signpost her to the Debt Free Wannabe board.

Has your mum considered social housing for the over 55s if she's struggling in her current home?  Rather than a bungalow would a ground floor flat be suitable?

ditzy_smartguy

Thank for you advise. I feel like I should probably point out that this was my mum's idea - and my fiancee has been quite vocal about all of the points you've made regarding her "having control" of the roof over mum's head etc. 

From my point of view, it's less of a risk than putting her in a rented house, which can be pulled at and time.

We're not trying to screw mum over, we're just trying to find the best way of getting her the type of property that she needs

SH bungalows generally have 100+ bids on them whenever they come up (coastal area with a higher than avergae demand for this type of residence) and her home ownership puts her at the bottom of the queue, if she's even eligable at all.

In terms of SDLT - presumably this won't be due as the house is valued at £85k and will be my fianee's only property. 

I was really just wanting to know if we're going to end up with a huge tax bill at point of sale, I guess the remortgage to pay off debt would be a "nice to have", but if we have to wait to sell to do that then so be it. The main aim of all of this is to get mum a home she can live in without stairs, if we were able to do a straight sell and buy at the same value then none of this debt repayment would be a consideration, but as I've said above, bungalow's around here start at around £170k so it just isn't possible, and she just won't get a mortgage with the level of debt she currently has, at least not at the value we need for the property type.

I really appreciate both of your advice, and the obvious concern you have for my mum! 

_Penny_Dreadful

ditzy_smartguy said:

Thank for you advise. I feel like I should probably point out that this was my mum's idea - and my fiancee has been quite vocal about all of the points you've made regarding her "having control" of the roof over mum's head etc. 

From my point of view, it's less of a risk than putting her in a rented house, which can be pulled at and time.

We're not trying to screw mum over, we're just trying to find the best way of getting her the type of property that she needs

SH bungalows generally have 100+ bids on them whenever they come up (coastal area with a higher than avergae demand for this type of residence) and her home ownership puts her at the bottom of the queue, if she's even eligable at all.

In terms of SDLT - presumably this won't be due as the house is valued at £85k and will be my fianee's only property. 

I was really just wanting to know if we're going to end up with a huge tax bill at point of sale, I guess the remortgage to pay off debt would be a "nice to have", but if we have to wait to sell to do that then so be it. The main aim of all of this is to get mum a home she can live in without stairs, if we were able to do a straight sell and buy at the same value then none of this debt repayment would be a consideration, but as I've said above, bungalow's around here start at around £170k so it just isn't possible, and she just won't get a mortgage with the level of debt she currently has, at least not at the value we need for the property type.

I really appreciate both of your advice, and the obvious concern you have for my mum! 

You’re not listening to what we’re telling you about the mortgage issue. If your fiancee cannot get a mortgage for a house she will not be living in where the deposit is coming from gifted equity that’s coming from the occupant this whole idea is a non-starter. 

SDLT will be due if/when your fiancee, potentially wife by then, purchases the bungalow. You said bungalows start at £170k. Once your fiancee becomes your wife as a married couple you will already own a residential property (the one that’s in your name) so purchasing the bungalow as your wife will incur the higher rate of SDLT. 

Your mum hasn’t actually put her name down for over-55 social housing, had she? You’re assuming she won’t get it. 

Why does your mum need a bungalow? Wouldn’t a ground floor flat be suitable? Can her current home be adapted? 

noitsnotme

A stair lift would be much cheaper.