CTG liable if i rent to my parents?

ncooper1974

i'm not sure if this is the correct forum, but here goes.
I own my house (valued at £250k) which is mortgage free. I'm getting married in April this year and would like to buy somewhere bigger to live. I have yet to decide if i will sell my home or keep it, but herein lies my problem.
my parents live in rented accomodation. they are 59 and 60. they have never owned their own home, and are unlikely ever to do so. They expressed an interest in buying my house from me if i were to help them with the mortgage, which i'll gladly do. however, i'm not sure if, in their position (my dad works and earns about 15k a year, my mum is recently retired), they will be eligable for a mortgage on the house.
they have about £100k in savings and investments, and so i thought if they would give me that as a deposit, and then get a mortgage for £150k, then they could pay the mortgage (interest only) and both my and my brother would also help out, while also being the guarantors. Does anyone know if this is possible?
Failing that, a backup plan would be to just let my parents move in and pay me a nominal rent - say £400. However, in doing this i'd have to declare this as income on my self assessment forms and pay tax on it, which i dont want to do!
Would i be allowed to remortgage the house for say £100k, and then 'let' it out to my parents. that way, I'll get £100k which i can use as a deposit for the new house, and the rent moneys that i receive from my parents will be offset against the interest payments on the mortgage. if i did this approach:
1) will i have to pay ctg on the house (assuming it went up in value) when i sell in the future
2) am i allowed to only charge my parents £400 rent, when the market value of my property is about £1000? would the govt think i'm trying to avoid tax by charging lower rent? isn't there a social responsibility here whereby i'm taking my parents out of council accom and putting them into rented accom?
hopefully i haven't gone on too much, but i'm struggling to find a way to let my parents live at my house without the future burden of paying tax on my kindness. any comments or help fully welcome!

Voyager2002

Please get professional advice on this. Yes, most of the ideas that you have outlined would involve a tax liability.

fengirl_2

I can't advise you on the possibility of your parents being granted a loan on your property and whether or not you would be accepted as a guarantor - I think you need a mortgage broker for this.
Regarding renting the property to them - you can charge as much or as little rent as you want - this is nothing to do with the government. As you say, you would need to pay tax on the rental income but any loan secured on the property would attract tax relief to set against this.
Ref CGT - the period during which you have lived in the property would be exempt as would the last 3 years of ownership when you come to sell. In addition, there is a special exemption for properties which have been your only or main residence and then let. The maximum relief is currently £40k of the chargeable gain.

ncooper1974

fengirl, if you say that i can charge as much or as little as i want for rent, is there anything stopping me charging them £1 per month?

if i took this method, then my parents can keep the £100k savings to enjoy their retirement, the house stays in my name, and when i sell, i'll just pay the cgt on the difference in price between when they moved in (i'll get 3 valuations and take the average) and the price when i sell, less any exemption due for the property being my ppr.

dzug

Some thoughts:

If they are paying a £150K mortgage what will they have left to live on? Precious little on my calculations. And the prospect is that unlike younger couples their income will drop rather than increase

Yes you will be liable for CGT when you eventually sell if it ceases to be your PPR

Can't see any reason why you can't charge them whatever rent you want, including none. It's selling at unrealistically low prices that has unwanted tax effects, not renting.

DeepSporran

ncooper1974 wrote: »

and when i sell, i'll just pay the cgt on the difference in price between when they moved in (i'll get 3 valuations and take the average) and the price when i sell, less any exemption due for the property being my ppr.

The CGT calculation doesn't use the value of the house at the time when the renting out begins.

You take the original purchase price and the eventual selling price to work out the gain, and then you effectively do some pro-rata calculation to get the PPR relief.

ncooper1974

dzug - even though they will have a £150k mortgage, they wont be paying for the full cost.
they are currently paying £400pcm rent on their house.
i should be able to get a £150k mortgage at 5.15%, which means an interest only payment of £643.75 pcm.
As i said before, my brother and i will both help with the payments, so my parents will continue to pay the £400pcm they already pay to rent, and we'll make up the difference equally between us.

the way i see it i have 2 options.
1) sell the house to them, so they are on the title deeds. it will give them the security (not that they need it cos i wont evict them) and also on death, there is no CTG!
2) keep the house in my name. let them live there at a considerable discount on the monthly rent (and maybe reduce the rent as their income starts to fall). When i come to sell, i'll be liable to CTG less any expenses and deductions that i can apply

option 1 natually leaves me with no tax liability.
option 2 means i can give something back to my parents, but ultimately, i'll end up with some form of tax liability on their death

Voyager2002

ncooper1974 wrote: »

1) sell the house to them, so they are on the title deeds. it will give them the security (not that they need it cos i wont evict them) and also on death, there is no CTG!
2) keep the house in my name. let them live there at a considerable discount on the monthly rent (and maybe reduce the rent as their income starts to fall). When i come to sell, i'll be liable to CTG less any expenses and deductions that i can apply

option 1 natually leaves me with no tax liability.
option 2 means i can give something back to my parents, but ultimately, i'll end up with some form of tax liability on their death

Option 1 would be generous (presumably they can't pay you the full market value of your house). Do remember that once it is theirs it belongs to them, and so potentially could be taken by a creditor, or whoever. Also, on their death the value of the house would be taxed as part of their estate.

ncooper1974

heres a thought.
what if i just gift the house to my parents. They'll pay the SDLT and any legal fees for the transfer of the deeds into their name. they then pay me a nominal rent less than or equal to what they are paying now.

All that remains would be for me to put the house house into a trust, so that on death, I am the sole beneficary of the house, thus avoiding any potential IHT.

this option does not involve any mortgage application, no declaration of income (as they can just pay me in cash) and no CGT liability. is that right?