Taking a mortage over from a family member

[Deangtv]

4 years ago, me and the wife saved like made to get a deposit together to buy a house, we were able to save circa £40k. However at the time, due to credit ratings and earnings we were not able to secure a mortgage. Lucky for us my wife’s brother was kind enough to help us out and secure a mortgage on the property but in his name through his bank. We have for the past 4 years paid the mortgage to him and the mortgage is paid.
4 years down the line we are now in a stronger position to secure a mortgage on the property as we don’t really want to move and would like to take the mortgage on ourselves. The property value has also risen so we have circa £150k in the property.

I’m looking for advice on how best to take this forward and what would be the most cost effective way of doing this.
Would stamp duty apply? I’m guessing it would but I don’t have a clue.

Ideally we would like to take some money over and above the previous mortgage to possibly build and extension, is this possible??

[Sarnie]

Forget that you are related to the property owner.

You are a tenant, your brother is the landlord.

You would be buying the property from your brother, so stamp duty applies.

Your Brother can gift you the equity in the property in the property (as he is related to you) to form your deposit.

For example;

£300k value
£150k mortgage

Brother Gifts you £100k equity and you borrow £200k from the new lender, £150k to pay off the current mortgage and £50k for the extension.

[Deangtv]

Sarnie, thanks for the advice. Your thoughts mirror mine but I just wanted to seek advice before I go cap in hand to a mortgage broker.

OK my brother-in-law gifts us the equity but would this be susceptible to capital gains tax on the increase value?

[Sarnie]

Deangtv said:

Sarnie, thanks for the advice. Your thoughts mirror mine but I just wanted to seek advice before I go cap in hand to a mortgage broker.

OK my brother-in-law gifts us the equity but would this be susceptible to capital gains tax on the increase value?

I'm a mortgage broker, feel free to drop me a line.

I'd advise you/your brother speak to a Solicitor/Accountant to clarify your brothers CGT position, but yes, I'd expect there to be CGT to pay.....

[uknick]

Deangtv said:

Sarnie, thanks for the advice. Your thoughts mirror mine but I just wanted to seek advice before I go cap in hand to a mortgage broker.

OK my brother-in-law gifts us the equity but would this be susceptible to capital gains tax on the increase value?

Yes, CGT may be payable on the information you've given.

This will be paid on his gain less any costs related to buying/selling/refurbishing the property.

[Jockman]

uknick said:

Yes, CGT may be payable on the information you've given.

This will be paid on his gain less any costs related to buying/selling/refurbishing the property.

....less his CGT Allowance of £11,100.

[Deangtv]

i feared this, as he is a higher rate tax payer the hit to us would be pretty big. If there is £100k profit in the property, we could be looking at £20k lose, is this correct??

[Deangtv]

could the property not be gifted before the sale?? apologies I'm an engineer not a tax advisor

[Countdown]

Not wishing to throw a spanner in the works but has he been declaring the rental income on his tax return?

[Ozzie Osmond]

Precisely. OP needs to see a solicitor and get this properly sorted out - including any tax implications.

[uknick]

Deangtv said:

could the property not be gifted before the sale?? apologies I'm an engineer not a tax advisor

No, as it is a related party doing the gifting HMRC will deem the asset was transferred at market value.

And, if he were to die within 7 years of the gift, there may be some IHT to pay if his estate is liable for CGT. This IHT will could be on the full property value, not just the gain.

As Ozzie said, you and the other parties involved in this need to take professional advice to minimise the tax liabilities. I would use a STEP registered solicitor for this, or an accountant. From my experience normal solicitors have very little knowledge of tax management.

[uknick]

Jockman said:

....less his CGT Allowance of £11,100.

True, but I omitted this as we don't know how much of his annual allowance the property owner has left for this year.

[Jockman]

uknick said:

Jockman said:

....less his CGT Allowance of £11,100.

True, but I omitted this as we don't know how much of his annual allowance the property owner has left for this year.

I knew that Nick but was unsure if OP did

[98elise]

Could a proportion of the equity be gifted over a number of years, ie taking advantage of CGT allowance over a number of years?

I'm just a fat bloke from IT so no idea if thats a possibe/legal etc

[Jockman]

Sounds messy. Nine years of tying up brother's CGT Allowance. Initial mortgage in Sarnie's example would shoot up to £289k from £200k, decreasing by £11k pa for 8 more years. Might be a stretch. Might increase LTV and so the pay rate. Brother might drop dead. Wife might leave him. Might be a property crash....

But I like you're thinking

[Eric Mc]

Simple answer - no.

An asset cannot be disposed of piecemeal over a number of years in an effort to claim the Annual Allowance each year. The transaction will be deemed to have happened in full at the date of the first transfer.

[98elise]

Eric Mc said:

Simple answer - no.

An asset cannot be disposed of piecemeal over a number of years in an effort to claim the Annual Allowance each year. The transaction will be deemed to have happened in full at the date of the first transfer.

I'll stick to IT then