My BTL in my mums name.
Discussion
Hi all,
Since my aunt passed away 13 years or so ago, I have been left with a trust fund of about £40,000 which I can now gain access to. I have just turned 24 years old, and I realise I am in an extremely fortunate position, and I want to make this money work for me the best way that it can. I have always wanted to invest in property and I see property investments as a big part of my future. Because of this I want to get my property portfolio going. I have had an offer for a studio flat accepted for £105,000 and all my costs (Deposit, fee's, stamp duty etc.) will come to around £34,000. Leaving me around £6000 as contingency.
However, theres a catch. I only earn £18,500 pa and am currently on a 6 month contract therefore I am unable to secure a residential mortgage. Having only just left University and wanting to get on the property ladder before I am priced out, my mum is willing to take out a BTL for me. Fortunately, my mum has a few BTL's and the plan is to gift her the £34,000 to purchase the studio. Due to her age, we are able to secure a mortgage of £75,650 at 2.94% rising to 4.34% after 2 years on a 15 year interest only mortgage.
Now, the reason I am positing is regards to the best way to take over the property. My short term goal is to increase my wage over the next couple of years, and save up to purchase my own property on a residential mortgage. Once I earn around £25,000 pa and have a residential mortgage of my own, it will make it a lot easier to secure a BTL mortgage on the studio.
Is it feasible and legal for my mum to sell me the studio way under market value say at £75,650 (Mortgage amount) and what are the tax implications of this. I understand I will have to pay stamp duty once again which I am perfectly fine doing, as its something I must get used to if I want to pursue BTL's.
Another option is to just keep the property in her name for the remaining 15 years, gifting me the profit from the rental, however, when the mortgage term ends, capital gains may be a big problem.
Is it worth taking over the property earlier to try and minimise capital gains, or wait until later? I'm just unsure of my options and the best way to go about doing things.
Your help is greatly appreciated
Since my aunt passed away 13 years or so ago, I have been left with a trust fund of about £40,000 which I can now gain access to. I have just turned 24 years old, and I realise I am in an extremely fortunate position, and I want to make this money work for me the best way that it can. I have always wanted to invest in property and I see property investments as a big part of my future. Because of this I want to get my property portfolio going. I have had an offer for a studio flat accepted for £105,000 and all my costs (Deposit, fee's, stamp duty etc.) will come to around £34,000. Leaving me around £6000 as contingency.
However, theres a catch. I only earn £18,500 pa and am currently on a 6 month contract therefore I am unable to secure a residential mortgage. Having only just left University and wanting to get on the property ladder before I am priced out, my mum is willing to take out a BTL for me. Fortunately, my mum has a few BTL's and the plan is to gift her the £34,000 to purchase the studio. Due to her age, we are able to secure a mortgage of £75,650 at 2.94% rising to 4.34% after 2 years on a 15 year interest only mortgage.
Now, the reason I am positing is regards to the best way to take over the property. My short term goal is to increase my wage over the next couple of years, and save up to purchase my own property on a residential mortgage. Once I earn around £25,000 pa and have a residential mortgage of my own, it will make it a lot easier to secure a BTL mortgage on the studio.
Is it feasible and legal for my mum to sell me the studio way under market value say at £75,650 (Mortgage amount) and what are the tax implications of this. I understand I will have to pay stamp duty once again which I am perfectly fine doing, as its something I must get used to if I want to pursue BTL's.
Another option is to just keep the property in her name for the remaining 15 years, gifting me the profit from the rental, however, when the mortgage term ends, capital gains may be a big problem.
Is it worth taking over the property earlier to try and minimise capital gains, or wait until later? I'm just unsure of my options and the best way to go about doing things.
Your help is greatly appreciated
SD + 3% payable on first purchase. You mum can sell you the flat for £1 if she wants but CGT and SD will be payable of actual value, so that will be SD + another 3%.
For a BTL the worst property to buy is a studio flat.
I would think again about your BTL portfolio, as other have said there are plenty of tax implications on your suggestions. Instead buy a home first. IMHO not much will be happening the property market anytime soon.
For a BTL the worst property to buy is a studio flat.
I would think again about your BTL portfolio, as other have said there are plenty of tax implications on your suggestions. Instead buy a home first. IMHO not much will be happening the property market anytime soon.
Hi all!
Thank you for your responses! I appreciate the help!
For some reason, what I now think is the most sensible thing to do skipped my mind. After discussions with my mum, this seems like it could be the best option, what do you think? Does this have any costly tax implications?
In 6 months time I will be offered a permanent contract in my current employment. Once that happens I should be able to secure a residential mortgage to the amount of £87500 at 1.89% for 30 years. From what I've researched, I assume it's possible for my mum to 'gift' me the equity in flat in 6 months/ 1 years time. And providing she doesn't pass away between now and 7 years time (touch wood) there won't be any costly tax implications.
Also, as I would secure the property on a residential mortgage and it would be my first property, I won't have to pay stamp duty. We would just have to pay it on the initial purchase.
So in other words, I guess this option means my mum is just 'securing' the property for me until I am in a position to take it over.
Regarding the flat being a studio. I know it's not ideal, and I would prefer a 1 bed. However, it's the location which is a dream. Right in the centre of town. 0.1 miles from a main station with direct links to London. Right by all the shops and bars. A 24 year olds dream.
What do you guys think?
Thank you for your responses! I appreciate the help!
For some reason, what I now think is the most sensible thing to do skipped my mind. After discussions with my mum, this seems like it could be the best option, what do you think? Does this have any costly tax implications?
In 6 months time I will be offered a permanent contract in my current employment. Once that happens I should be able to secure a residential mortgage to the amount of £87500 at 1.89% for 30 years. From what I've researched, I assume it's possible for my mum to 'gift' me the equity in flat in 6 months/ 1 years time. And providing she doesn't pass away between now and 7 years time (touch wood) there won't be any costly tax implications.
Also, as I would secure the property on a residential mortgage and it would be my first property, I won't have to pay stamp duty. We would just have to pay it on the initial purchase.
So in other words, I guess this option means my mum is just 'securing' the property for me until I am in a position to take it over.
Regarding the flat being a studio. I know it's not ideal, and I would prefer a 1 bed. However, it's the location which is a dream. Right in the centre of town. 0.1 miles from a main station with direct links to London. Right by all the shops and bars. A 24 year olds dream.
What do you guys think?
Joemp said:
Hi all!
Thank you for your responses! I appreciate the help!
For some reason, what I now think is the most sensible thing to do skipped my mind. After discussions with my mum, this seems like it could be the best option, what do you think? Does this have any costly tax implications?
In 6 months time I will be offered a permanent contract in my current employment. Once that happens I should be able to secure a residential mortgage to the amount of £87500 at 1.89% for 30 years. From what I've researched, I assume it's possible for my mum to 'gift' me the equity in flat in 6 months/ 1 years time. And providing she doesn't pass away between now and 7 years time (touch wood) there won't be any costly tax implications.
Also, as I would secure the property on a residential mortgage and it would be my first property, I won't have to pay stamp duty. We would just have to pay it on the initial purchase.
So in other words, I guess this option means my mum is just 'securing' the property for me until I am in a position to take it over.
Regarding the flat being a studio. I know it's not ideal, and I would prefer a 1 bed. However, it's the location which is a dream. Right in the centre of town. 0.1 miles from a main station with direct links to London. Right by all the shops and bars. A 24 year olds dream.
What do you guys think?
Will your mum be living in the flat she gifts to you?Thank you for your responses! I appreciate the help!
For some reason, what I now think is the most sensible thing to do skipped my mind. After discussions with my mum, this seems like it could be the best option, what do you think? Does this have any costly tax implications?
In 6 months time I will be offered a permanent contract in my current employment. Once that happens I should be able to secure a residential mortgage to the amount of £87500 at 1.89% for 30 years. From what I've researched, I assume it's possible for my mum to 'gift' me the equity in flat in 6 months/ 1 years time. And providing she doesn't pass away between now and 7 years time (touch wood) there won't be any costly tax implications.
Also, as I would secure the property on a residential mortgage and it would be my first property, I won't have to pay stamp duty. We would just have to pay it on the initial purchase.
So in other words, I guess this option means my mum is just 'securing' the property for me until I am in a position to take it over.
Regarding the flat being a studio. I know it's not ideal, and I would prefer a 1 bed. However, it's the location which is a dream. Right in the centre of town. 0.1 miles from a main station with direct links to London. Right by all the shops and bars. A 24 year olds dream.
What do you guys think?
If she is not living i it, will she be receiving any rental income from the flat?
Joemp said:
She'll gift me the property and the capital in it, I would just need to raise a residential mortgage. The property will then be transferred in my name. As far as I can see, there are no tax implications as long as she lives longer than 7 years.
Hi, firstly I'm not an expert but I think the following might be worth thinking about - just a few thoughts that popped into my head on a skim read so apologies if they have been covered:Stamp Duty / Land Tax - if your mum buys it will she will have to pay 3% uplift up front as it's an additional property?
Gifting - as you note there are limited inheritance tax issues unless she passes soon after
Gifting - will she need to pay Capital Gains tax on get deemed market value vs purchase price?
Gifting - I assume if it's your first property and you are planning on living in it no 3% stamp duty uplift to be paid?
Mortgage - are there fees for your mums mortgage to get into/out of the deal in the timeframe you suggest?
Mortgage - I assume if you are getting a residential mortgage you will be living in it not letting it out?
Offer - any legal implications of your offer being made but your mum actually buying? I.e. Are these two separate offers?
Edited by CrouchingWayne on Monday 2nd January 10:07
Joemp said:
She'll gift me the property and the capital in it, I would just need to raise a residential mortgage. The property will then be transferred in my name. As far as I can see, there are no tax implications as long as she lives longer than 7 years.
What do you plan to do with the property after you are gifted it?Is the property actually owned by your mother at the moment?
If it is, will she relinquish all rights to the property when she gives it away?
In short, you just want to pay a load of tax unnecessarily because you can't be arsed to wait 6 months? You could save yourself all the hassle and all the risk by just writing a cheque for a few grand, for no reason to the taxman. 
What if the company you currently are on probation at decides to tinker with its economic direction and lose a few cheap heads? How long will it take you to start again and what are the cost implications on your investment?
What if you wake up and realise that your first ever real job isn't the best job on the planet and as you become wiser you realise you need to evolve your professional path?
Markets not going anywhere in a hurry. That property you're looking at is can be bought any day of the week.
From a purely mathematical perspective, seeing as it would probably take the investment way more than 6 months to return the money you are about to waste in order to buy 6 months early just what exactly is your business logic?
What reasons can you actually list for buying inefficiently now versus buying efficiently in 6 months?
What if the company you currently are on probation at decides to tinker with its economic direction and lose a few cheap heads? How long will it take you to start again and what are the cost implications on your investment?
What if you wake up and realise that your first ever real job isn't the best job on the planet and as you become wiser you realise you need to evolve your professional path?
Markets not going anywhere in a hurry. That property you're looking at is can be bought any day of the week.
From a purely mathematical perspective, seeing as it would probably take the investment way more than 6 months to return the money you are about to waste in order to buy 6 months early just what exactly is your business logic?
What reasons can you actually list for buying inefficiently now versus buying efficiently in 6 months?
As mentioned, lots of issues here............don't forget the early repayment charge on the BTL mortgage when your mother has to redeem it to sell the property to you.
Personally, the ERC plus the stamp duty + 3%, all for the sake of waiting six months, seems to be an expensive way of securing this property?
If you intend to buy it in six months, are you intending to rent it out on a 6 month AST and then tell the tenants that they are having to move straight out? Doesn't sound very attractive to a tenant to me.......
Or are you actually intending to move straight into the property, pay your mothers mortgage and then buy it off her in six months?
Personally, the ERC plus the stamp duty + 3%, all for the sake of waiting six months, seems to be an expensive way of securing this property?
If you intend to buy it in six months, are you intending to rent it out on a 6 month AST and then tell the tenants that they are having to move straight out? Doesn't sound very attractive to a tenant to me.......
Or are you actually intending to move straight into the property, pay your mothers mortgage and then buy it off her in six months?
Hi! Thanks for the response!
Stamp/duty - We will have the pay the initial 3% stamp duty as it's an additional property for my mum. However, when I take it over, I won't, as it will be a first property for me, i'll be living in it and i'll have it on a residential mortgage.
Capital gains - The hope is that as i'll buy it within 12/18 months, we shouldn't need to worry about CGT, unless the property increases in value considerably.
Mortgage - Fee's of getting into and out of the mortgage I have not investigated, so thank you for that!
Mortgage - I will now be living in it, and not letting it. Which will work in my favour, as the repayments on a residential costs near enough the same as on an interest only BTL.
Offer - My mum has made an offer in her name. So no problem there.
Thank you for your help. - Seems as though this is the best option for me right now. I don't want to still be living at home when I'm in my late 20's.
Stamp/duty - We will have the pay the initial 3% stamp duty as it's an additional property for my mum. However, when I take it over, I won't, as it will be a first property for me, i'll be living in it and i'll have it on a residential mortgage.
Capital gains - The hope is that as i'll buy it within 12/18 months, we shouldn't need to worry about CGT, unless the property increases in value considerably.
Mortgage - Fee's of getting into and out of the mortgage I have not investigated, so thank you for that!
Mortgage - I will now be living in it, and not letting it. Which will work in my favour, as the repayments on a residential costs near enough the same as on an interest only BTL.
Offer - My mum has made an offer in her name. So no problem there.
Thank you for your help. - Seems as though this is the best option for me right now. I don't want to still be living at home when I'm in my late 20's.
Hi, Thanks for all your responses! Very helpful.
The idea behind buying the property now, verses in a 6/18 months time when I can secure my own mortgage is A) The property in question is perfect for what I need right now, and I have not seen any properties within my price range, in that location since i started looking 3/4 months ago. I realise I am paying/wasting unnecessary money in order to secure this property earlier. However, a couple of thousand (For me, and along as it's ONLY a couple of thousand) seems to be worth paying if it gets me the property I want? -
B) If i want to move out of my parents property now, and rented somewhere, i'd easily have to pay £500/600pm for a room. However, £300pm repayment mortgage seems very attractive to me.
C) With regards to living in it or renting to tenants for the next 6/18 months. Ideally I would like to live in it, however, I don't know the legal implications of this if my mum has the mortgage. - If renting out tenants, it would be for a minimum of 1 year.
So it seems there are no great tax implications if my mum gifts the property back to me? - Just the initial waste on stamp duty and fees to secure the property?
Really do appreciate the help!!
Cheers
The idea behind buying the property now, verses in a 6/18 months time when I can secure my own mortgage is A) The property in question is perfect for what I need right now, and I have not seen any properties within my price range, in that location since i started looking 3/4 months ago. I realise I am paying/wasting unnecessary money in order to secure this property earlier. However, a couple of thousand (For me, and along as it's ONLY a couple of thousand) seems to be worth paying if it gets me the property I want? -
B) If i want to move out of my parents property now, and rented somewhere, i'd easily have to pay £500/600pm for a room. However, £300pm repayment mortgage seems very attractive to me.
C) With regards to living in it or renting to tenants for the next 6/18 months. Ideally I would like to live in it, however, I don't know the legal implications of this if my mum has the mortgage. - If renting out tenants, it would be for a minimum of 1 year.
So it seems there are no great tax implications if my mum gifts the property back to me? - Just the initial waste on stamp duty and fees to secure the property?
Really do appreciate the help!!
Cheers
Joemp said:
So it seems there are no great tax implications if my mum gifts the property back to me?
I don't understand what you mean by this.Does your mother currently own the property outright?
Does your mother currently live in the property?
Id she DOESN'T live in the property, when she "gifts" the property to you she will have to pay Capital Gains Tax EVEN THOUGH SHE HAS RECEIVED NO CASH FOR THE DISPOSAL.
How does she intend to actually pay the Capital Gains Tax liability she will incur?
This is an example of what can happen based on an internet guide I came across -
Capital gains tax is raised when you sell or gift an asset for more than you bought it for. You have a tax-free amount of £11,100 but the excess is taxed at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers.
If you gift your daughter the property, you will have to pay capital gains tax on the gift.The amount you will be taxed on will be the difference between the current value of the house and the price you paid for it.
If you give the asset to your husband, the transfer will be deemed to take place on a 'no gain, no loss' basis. This means that your husband inherits the property at the same value you did and there is no capital gains tax to pay. However, when he gives the house to your daughter, capital gains tax will be due and calculated from what you paid for it.
Taxpayers sometimes gift assets to their spouse if they are a basic-rate taxpayer or have an unused annual exemption, so the tax bill will be smaller. But there is the chance you'll be caught by the anti-avoidance legislation if you try this.
You could consider transferring the property into a trust for the benefit of your daughter.This has the benefit of allowing you to defer any capital gains until your daughter sells the property. Be aware though that a trust will incur fees.
Hi Eric,
Im gifting my mum £34,000 to cover the costs of purchasing the studio flat. There will be about £30,000 capital in the property over and above her mortgage. When I am able to secure my own residential mortgage she intends to transfer the ownership of the property into my name. Hopefully, within that time frame (6/18 months) the market value of the property wouldn't have increased so much, limiting the amount of CGT that she'll pay.
By gifting me the £30,000 capital thats hopefully still in the property, all i'll need to do is raise a mortgage. I was just wondering if there are any tax implications in gifting me this money. The only tax I can see i'll have to pay is inheritance should she pass within 7 years. (Touch wood this doesn't happen :'( )
Does that help? Or am I still missing something?
The problems I can see, and the ones people have raised is that I will be paying more money than I should just to have the 'luxury' of securing the property before I am in a position to purchase it myself.
Im gifting my mum £34,000 to cover the costs of purchasing the studio flat. There will be about £30,000 capital in the property over and above her mortgage. When I am able to secure my own residential mortgage she intends to transfer the ownership of the property into my name. Hopefully, within that time frame (6/18 months) the market value of the property wouldn't have increased so much, limiting the amount of CGT that she'll pay.
By gifting me the £30,000 capital thats hopefully still in the property, all i'll need to do is raise a mortgage. I was just wondering if there are any tax implications in gifting me this money. The only tax I can see i'll have to pay is inheritance should she pass within 7 years. (Touch wood this doesn't happen :'( )
Does that help? Or am I still missing something?
The problems I can see, and the ones people have raised is that I will be paying more money than I should just to have the 'luxury' of securing the property before I am in a position to purchase it myself.
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