At what point does a house transfer stop being a PET?
Discussion
A friend has small BTL that has been giving him frustration with repairs and bad tenants. He asked if I would be interested in "having" it. He has been poorly recently and would rather have some cash in the bank than a bad property.
The house in its current state is worth circa £100k. He has asked for some cash and my car in payment. This would equate to around £50k.
I assume CGT would be due, but what about IHT?
When does a cheap house sale become a PET? Is there a % threshold?
Thanks
The house in its current state is worth circa £100k. He has asked for some cash and my car in payment. This would equate to around £50k.
I assume CGT would be due, but what about IHT?
When does a cheap house sale become a PET? Is there a % threshold?
Thanks
Take professional advice, selling a house below it's market value could get a lot of unwanted attention from HMRC. I recently sold an investment property to my dad as I wanted the cash to buy a bigger house for myself, it had to be independently valued and he paid the market value. No doubt some valuers will value it slightly lower or slightly higher, but 50% is not going to float.
Inkyfingers said:
Eric Mc said:
Why would an imndividual want to dispose of a property at less than its market value?
Good question, even if he approached one of these webuyanyhouse type companies or stuck it up for auction he'd get closer to the market value (assuming the £100k valuation is real).
marcusjames said:
The house is in a state of disrepair, with a long-term tenant (30 years). In theory he could sell to the open market but has mentioned that he would like my wife and I to have it. His father built the house and he would like it to stay with someone he knows. That probably sounds mad but he is a sentimental chap
Gullible more like.Inkyfingers said:
Good question, even if he approached one of these webuyanyhouse type companies or stuck it up for auction he'd get closer to the market value (assuming the £100k valuation is real).
Get your friend to put the house in an auction, be very honest about all it faults, select the worse time and place to sell it and go to the auction and bid for it. Hopefully no one else will be intereted in it and you'll get it for the price you want. I think I am right in thinking that HMRC will accept the aution price as the market price.Answering the actual question:
In effect unless your friend has given away the full nil rate band the house will not be an immediate PET as it will form part of the nil rate band allowance he's not used.
The clock of 7 years still starts to tick though, as after 7 years he will get back the full allowance, that he would otherwise have used, as the gift drops completely out of the equation at that point.
The value of the transfer will be £100k, as far as IHT is concerned no matter what you paid for it, and woud only impact in the case of death within 7 years.
CGT would be a trifle more complex and full advise around that would be worth taking, the IHT piece not so much of an immediate issue I would suspect.
In effect unless your friend has given away the full nil rate band the house will not be an immediate PET as it will form part of the nil rate band allowance he's not used.
The clock of 7 years still starts to tick though, as after 7 years he will get back the full allowance, that he would otherwise have used, as the gift drops completely out of the equation at that point.
The value of the transfer will be £100k, as far as IHT is concerned no matter what you paid for it, and woud only impact in the case of death within 7 years.
CGT would be a trifle more complex and full advise around that would be worth taking, the IHT piece not so much of an immediate issue I would suspect.
Your friend can sell you his house for whatever price you agree, it's a matter between the 2 of you. What you are been told here is if the 2 of you do the transaction you'd better be in a position to justify it or at least expect it to be scrutinised for 1 reason alone and the is was their an element of tax irregularity about it. The 2 things they'll look at are is their "side" payments, ie has the chippy you run been under declaring income and you need to get rid of lots of cash or is your friend taking this out of his estate at under value.
If HMRC opened any enquiry, you could see fees of 10-20K from a leading firm for a disclosure.
You or your friend need to get both Tax and legal advice as if you have asked this question here, you inherently are uncomfortable with idea
If HMRC opened any enquiry, you could see fees of 10-20K from a leading firm for a disclosure.
You or your friend need to get both Tax and legal advice as if you have asked this question here, you inherently are uncomfortable with idea
ellroy had it spot on.
The price you two agree is not necessarily the figure HMRC will use for IHT purposes. The relevant value is the loss in value to the estate (i.e. true market value) not the cosy figure two mates might arrive at as part of some mutual back-scratching.
They would probably take a similar view with regards to the CGT calculation, so really its a question of how much you are intending to under-value you it, and being able to substantiate the value you put on it.
The price you two agree is not necessarily the figure HMRC will use for IHT purposes. The relevant value is the loss in value to the estate (i.e. true market value) not the cosy figure two mates might arrive at as part of some mutual back-scratching.
They would probably take a similar view with regards to the CGT calculation, so really its a question of how much you are intending to under-value you it, and being able to substantiate the value you put on it.
As the parties are not "connected" and assuming no artificial scheme or arrangement, the sale price is by mutual agreement.
There is no IHT implication, and CGT will be based on the agreed sale price.
No SDLT as below the threshold.
However, I would recommend professional advice - if not, make sure the supporting paperwork is in order.
There is no IHT implication, and CGT will be based on the agreed sale price.
No SDLT as below the threshold.
However, I would recommend professional advice - if not, make sure the supporting paperwork is in order.
Rambaud said:
As the parties are not "connected" and assuming no artificial scheme or arrangement, the sale price is by mutual agreement.
There is no IHT implication, and CGT will be based on the agreed sale price.
No SDLT as below the threshold.
However, I would recommend professional advice - if not, make sure the supporting paperwork is in order.
I agree with this. Surely as friends with no family ties it can be sold for however much the vendor chooses?There is no IHT implication, and CGT will be based on the agreed sale price.
No SDLT as below the threshold.
However, I would recommend professional advice - if not, make sure the supporting paperwork is in order.
Eric Mc said:
marcusjames said:
The house is in a state of disrepair, with a long-term tenant (30 years). In theory he could sell to the open market but has mentioned that he would like my wife and I to have it. His father built the house and he would like it to stay with someone he knows. That probably sounds mad but he is a sentimental chap
Gullible more like.Doesn't sound remotely gullible - just like someone who is happy to take a hassle free £50k and pass a huse on to someone he knows and likes, rather than have a possible hassle with a stranger.
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