PLEASE READ BEFORE POSTING
Hello Forumites! In order to help keep the Forum a useful, safe and friendly place for our users, discussions around non-MoneySaving matters are not permitted per the Forum rules. While we understand that mentioning house prices may sometimes be relevant to a user's specific MoneySaving situation, we ask that you please avoid veering into broad, general debates about the market, the economy and politics, as these can unfortunately lead to abusive or hateful behaviour. Threads that are found to have derailed into wider discussions may be removed. Users who repeatedly disregard this may have their Forum account banned. Please also avoid posting personally identifiable information, including links to your own online property listing which may reveal your address. Thank you for your understanding.Questions on Approaching a Purchase at an Undervalue
shaminc3
Posts: 6 Forumite
Hi,
For context: My parents own two homes, one which is their residential home and another which is a BTL. Their intention is to sell the residential home to me at an undervalue (i.e property is worth c.£500k but they are willing to sell it to me for £280k). They want to sell the property for this amount to wipe out the mortgage on it and use the remainder to reduce the mortgage on the BTL and then change that BTL into their residential property.
I understand that their will be questions of Inheritance tax, Deprivation of Assets and potentially CGT (but as they are selling their residential home, I don't think this to be an issue?). As they will be gifting the difference between actual market value and the purchase price (most likely with a Letter to state it is a gift), can I use this gift as a deposit in conjunction with my own cash amount?
Next question is, will there be other stumbling blocks along the way to a transaction of this sort? Especially with such a sizable undervalue in this case. I'm just wondering about further tax issues that I haven't contemplated and the barriers to making this happen as it can be quite complex.
Thanks for any guidance!
For context: My parents own two homes, one which is their residential home and another which is a BTL. Their intention is to sell the residential home to me at an undervalue (i.e property is worth c.£500k but they are willing to sell it to me for £280k). They want to sell the property for this amount to wipe out the mortgage on it and use the remainder to reduce the mortgage on the BTL and then change that BTL into their residential property.
I understand that their will be questions of Inheritance tax, Deprivation of Assets and potentially CGT (but as they are selling their residential home, I don't think this to be an issue?). As they will be gifting the difference between actual market value and the purchase price (most likely with a Letter to state it is a gift), can I use this gift as a deposit in conjunction with my own cash amount?
Next question is, will there be other stumbling blocks along the way to a transaction of this sort? Especially with such a sizable undervalue in this case. I'm just wondering about further tax issues that I haven't contemplated and the barriers to making this happen as it can be quite complex.
Thanks for any guidance!
0
Comments
-
I understand that their will be questions of Inheritance tax,yes on the gifted element) Deprivation of Assets possibly on the gifted element)and potentially CGT No. As they will be gifting the difference between actual market value and the purchase price (most likely with a Letter to state it is a gift), can I use this gift as a deposit in conjunction with my own cash amount?
Yes
Next question is, will there be other stumbling blocks along the way to a transaction of this sort?Especially with such a sizable undervalue in this case.
don't see why
I'm just wondering about further tax issues that I haven't contemplated and the barriers to making this happen as it can be quite complex.0 -
SDLT on your purchase will be based on the consideration paid - £280K
the minimum consideration rule applies
https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm215600 -
Ah - sorry. Connected persons.:T0
-
So in this situation I would be liable for SDLT at the genuine market value of the property (i.e. C.£525k)?0
-
This minimum consideration rule relates to subsales (or "pre completion transactions" as we are meant to call them now).
To explain that: If your parents had contracted to buy a property for £525K but sold it straight on to you so you took the transfer, and you paid only £280K then your parents would have probably been able to get "pre completion transaction relief" and pay no SDLT. You however do not pay SDLT on the £280,000 you pay for the property. You pay it on the £525K. That is where this minimum consideration rule fits in.
There is another market rule (Finance Act 2003 section 53) when a person transfers a property to a company connected with the person, but that does not apply here.
It seems to me the SDLT liability will depend on how the lender is comfortable on seeing the transfer documented. Is it happy for the price to be shown as £280,000 so there is a transfer at undervalue on the title? Or does it insist on your parents making you a gift of the shortfall and showing the price as c. £525,000?0 -
Will your parents still be living in the house after they sell it to you?0
-
Red-Squirrel wrote: »Will your parents still be living in the house after they sell it to you?They want to sell the property for this amount to wipe out the mortgage on it and use the remainder to reduce the mortgage on the BTL and then change that BTL into their residential property.0
-
-
Red-Squirrel wrote: »Ah, missed that. Presume they are moving out on completion of the sale then OP?
That is correct, they will move into a different property and have no connection remaining with the one they intend to sell to me for an undervalue.0
This discussion has been closed.
Categories
- All Categories
- 343K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.6K Spending & Discounts
- 235.1K Work, Benefits & Business
- 607.8K Mortgages, Homes & Bills
- 173K Life & Family
- 247.8K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards