What would be the tax implications if I bought my Mum's house

emmalt

My mum has talked about looking into one of those equity release schemes in the future to bump up her pension. Whether they are any good or not is another debate but it did get me thinking.

If I bought her house (at market value of course) and let her live in it for free what would the tax implications be for her. I know that I would have to pay stamp duty if it is valued over £120K (?) and capital gains if I sold it for a profit in the future (after she passed away of course). But would my mother be liaible for any tax?

I am seeing this as an investment for me whilst helping my Mum.

Thanks

fengirl_2

Providing the house has been your mother's only or main residence throughout her period of ownership, she will have no tax to pay.

HugoSP

There are people who can answer with more authority than me here but in cases where the house has been signed over to the child as a gift, wouldn't the parent have to pay a market rent to live there?

As far as equity release schemes are concerned, there are 2 main types.

One comes in the form of a roll up mortgage where no interest is paid but it accrues onto the debt. This is paid off when the house is sold, just like any other debt secured against the house. However there is normally a guarantee that the debt won't exceed the proceeds of the house sale.

The other comes in the form of a guaranteed income in exchange for a stake in the house DON'T GO NEAR THIS ONE. These are usually very well geared to make sure the individual realises only a small proportion of the stake that the company then claims off the estate.

I think your idea is sound, provided it gets around any tax issues.

Once your mum has all this money in place she may want to think about inheritance planning. There are several means of giving to your children without incurring IHT.

CLAPTON

you can buy your mothers house within her incurring any tax liability

you will have to pay stamp duty and solicitors fees

will you need a mortgage?

when you sell it, there will be a CGT liability as it not your home. It very important you think about this fully.
It isn't obvious that this will be after she dies... maybe she would want to buy a sheltered flat or simply move...

Also consider the possibility that you may dies first, get divorced, go bankrupt etc etc.. what will then happen to the house...remember its yours not hers
are you married , or have a partner, or children own another house etc

margaretclare

HugoSP wrote: »

There are people who can answer with more authority than me here but in cases where the house has been signed over to the child as a gift, wouldn't the parent have to pay a market rent to live there?

As far as equity release schemes are concerned, there are 2 main types.

One comes in the form of a roll up mortgage where no interest is paid but it accrues onto the debt. This is paid off when the house is sold, just like any other debt secured against the house. However there is normally a guarantee that the debt won't exceed the proceeds of the house sale.

We did this in 2003, and I've discussed it in greater depth on other threads, so if Mum would like further info please PM me. The first stop for anyone enquiring about equity release should be the SHIP website - SHIP = safe home equity plans. See www.ship-ltd.org

The other comes in the form of a guaranteed income in exchange for a stake in the house DON'T GO NEAR THIS ONE. These are usually very well geared to make sure the individual realises only a small proportion of the stake that the company then claims off the estate.

This is known as a 'home reversion plan' and yes, I'd agree, don't go near this one.

The other thing that occurs to me is - how would your Mum feel if she was living in a house that used to be hers but is now a tenant, even if that was within the family?

Just a thought.

Margaret

Elaine_Wilson

I don't know much about this area but would there be any problems with the Pre Owned Asset Tax?

Anyhow, if you bought the house it would become a chargeable asset and you would be subject to capital gains on any increase in value. Whilst your mum owns it there is an exemption for CGT.

Have you thought about lending your mum regular amounts to supplement her income? The total loan would be repaid to you on her death and would reduce the value of the estate for inheritance tax purposes (if that is relevant).

JohnnieW

Pre owned assets tax should not be a problem. She would be selling the house at market value, and presumably paying a market rent back to her daughter so that the daughter could pay the mortgage.
Equity release shemes are rarely advised by professional advisors, there are better ways to release money from the value of your house, and in the case of the OP, the daughter would own the property.
Elaine Wilson is right about the house having PPR exemption whilst the mum owned and lived in the property which would be lost if the daughter bought the property.
However, a way round this would be to purchase the property via a trust. The PPR exemption is extended to benefiicaries of trusts.
The trust would give the beneficiary of the trust ie mother here the right to live in the property.
The other thing to consider is means tested benefits.
If you purchase the property for say £300k, then your mum has that amount of capital.
Presumably, you want her to spend this on enjoying herself, but it would also affect any means tested benefits and pension credit she is entitled to.
Hope I have made myself clear, but if you need explaination, let me know.
Regards
J

emmalt

Thank you all for your replies. This has given me food for thought.

My mum is in her 50's so it wouldn't be happening for a while yet but one to think about.

I hadn't thought about if I died before her (not that I am planning to) or getting divorced (not planning to either). A will would sort one issue. As for a divorce my husband has more to loose than me :rotfl:

Just the issue of long term care/benefits.........

margaretclare

emmalt wrote: »

Thank you all for your replies. This has given me food for thought.

My mum is in her 50's so it wouldn't be happening for a while yet but one to think about.

I hadn't thought about if I died before her (not that I am planning to) or getting divorced (not planning to either). A will would sort one issue. As for a divorce my husband has more to loose than me

Just the issue of long term care/benefits.........

Further to what I wrote in post #5 about equity release, your Mum couldn't do this because she's too young. One of us had to be 68 before we could release 25% of the equity on our property. So forget about equity release.

What does your Mum do for a living? She has at least 10 years yet before she can retire.

I appreciate that you may not be planning to die before your Mum. Sorry to mention it, but my younger daughter had no such plans either. In fact, the last time she came here in November 2002 I told her 'This will all be yours one day'. She squeezed my arm and said 'I hope not for a very long time'.

It didn't happen, and her death at the end of December that year was one event that caused us to consider equity release.

Margaret