Odd Tax/Investment/Housing Question...

[Kuroblack350]

After a little help folks

Let's say for example that you want to buy a family member's house, worth £100k.

Family members owes just 23k on mortgage.

Family member offers you the house for this 23k - enabling them to live mortgage free in it, and you to have the asset.

So, is there anything I'm missing here from a Tax or Legal viewpoint - obviously you get a house for 25% of it's retail value - can said PH'er be done for any kind of laundering or fraud here?

Sorry for odd questions chums, just thinking this through at the mo

Thanks all

[scotal]

I owuldnt have thought so, providing the house is genuinely worth less than 125k. If its less than that then HMRC wont care about Stamp Duty. (If its above that you could end up paying Stamp on the true value of the house, not what you paid for it.

You may also have a problem when it comes to disposal of the house, as you are going to be showing a fking great gain to the tax amn, which he's going to tax you on, at I think your highest rate of Income tax, less allowances. So 40% on most of it, as it stands today.

The vendor would be wise to have an agreement in place regarding their right to continue living in the house. This could prove to be a bugger if you wanted to raise money through a mortgage at a later date.

[Eric Mc]

Kuroblack350 said:

Let's say for example that you want to buy a family member's house, worth £100k.

Family members owes just 23k on mortgage.

Family member offers you the house for this 23k - enabling them to live mortgage free in it, and you to have the asset.

So, is there anything I'm missing here from a Tax or Legal viewpoint - obviously you get a house for 25% of it's retail value - can said PH'er be done for any kind of laundering or fraud here?

Thanks all

May I congratulate you on coming up with the most original and unique Capital Gains Tax/Inheritance Tax avoidance scheme ever devised (deeply ironic and sarcastic mode turned up to full volume ).

I'm afraid this type of set up has been long since legislated for by Revenue rules.

If a person sell a property for less than its true market value, the Revenue will calculate what the true value really was and substitute this figure in any Capital Gains Tax (CGT) computations. Therefore this ploy cannot be used to try and reduce or avoid CGT

In this case, I assume the house being considered for sale is the current "family member's" private residence. If that is the case, Capital Gains Tax will not be an issue.

However, Inheritance Tax and maybe Income Tax could be.

The individual who has transferred the property to another individual has passed on a major asset for less than its true value. Therefore he has removed from his estate a large compnent of his wealth which would have an impact on Inheritance Tax at a later date.
Again, the revenue don't like this - especially if the person passing on the property continues to live there and especially if they continue to live there for little or no rent.
Giving away something (or selling something artificially cheap - it amounts to the same thing) is referred to as a Gift With Reservation of Title and, if and when the "seller" or "gifter" dies, the property they thought they had disposed of will be added back into their estate when calculating the overall value of the estate on death.
Also, the Revenue will want the individual who is "renting" the property (the former owner) to pay Income Tax on the "benefit" they are receiving of the small or non-existent rent. Again, the Revenue will work out what the true or Market Rent should be and ask for Income Tax to be paid by the tenant between what this proper rent shouild be and what they are actually paying.

If the former owner pays a proper rent, then the Inhertitance Tax disposal might work.

Other agencies are not happy about individuals disposing of assets to family members, especially social services of various sorts when it looks like the individual is deliberately impoverishing themselves by reducing their asset base in order to qualify for various benefits etc.

So, it is an extremely tricky and dangerous strategy to attempt.

Scotal - since 6 April 2008 the MAXIMUM rate of CGT is 18% (Taper Relief and Indexation was abolished - however).

Edited by Eric Mc on Wednesday 30th July 09:03

[Olf]

All sorts of complexities to this.

I'm no expert but you'd have to think about:

If the numbers you are giving are for illustrative purposes I don't know but you have to get independant market valuations, you'd have to pay stamp duty on the actual market value of the house, if you sold the house and it wasn't you main residence you would be liable for CGT on the difference between what you paid for the house and the market sale value.

Tennancy law/sitting tennant. The residing family would want protection after you took control of the house so you couldn't kick them out. You'd want protection so that your investment was protected. Do they have children or other possible dependants that might move in with them subsequently or stake a claim?

Otherwise it would be legal. People can sell what they like to you for what value they like, it's all about not trying to con the tax man. ETA: Inheritance tax also will be an issue but Eric has said this above I see.

Edited by Olf on Wednesday 30th July 09:03

[scotal]

Eric Mc said:

Scotal - since 6 April 2008 the MAXIMUM rate of CGT is 18% (Taper Relief and Indexation was abolished - however).

I knew there was something wrong as I was typing that... need more coffee.

[Eric Mc]

swerni said:

but you can (I believe) set up a shell company who buys the asset and then can dispose of it at any price it sees fit.
Seems this is also a good way to avoid stamp duty

downside is it will cost you about £20k in fees

HTH

Why would this reduce taxes?

[Kuroblack350]

Eric Mc said:

Kuroblack350 said:

Let's say for example that you want to buy a family member's house, worth £100k.

Family members owes just 23k on mortgage.

Family member offers you the house for this 23k - enabling them to live mortgage free in it, and you to have the asset.

So, is there anything I'm missing here from a Tax or Legal viewpoint - obviously you get a house for 25% of it's retail value - can said PH'er be done for any kind of laundering or fraud here?

Thanks all

May I congratulate you on coming up with the most original and unique Capital Gains Tax/Inheritance Tax avoidance scheme ever devised (deeply ironic and sarcastic mode turned up to full volume ).

I'm afraid this type of set up has been long since legislated for by Revenue rules.

If a person sell a property for less than its true market value, the Revenue will calculate what the true value really was and substitute this figure in any Capital Gains Tax (CGT) computations. Therefore this ploy cannot be used to try and reduce or avoid CGT

In this case, I assume the house being considered for sale is the current "family member's" private residence. If that is the case, Capital Gains Tax will not be an issue.

However, Inheritance Tax and maybe Income Tax could be.

The individual who has transferred the property to another individual has passed on a major asset for less than its true value. Therefore he has removed from his estate a large compnent of his wealth which would have an impact on Inheritance Tax at a later date.
Again, the revenue don't like this - especially if the person passing on the property continues to live there and especially if they continue to live there for little or no rent.
Giving away something (or selling something artificially cheap - it amounts to the same thing) is referred to as a Gift With Reservation of Title and, if and when the "seller" or "gifter" dies, the property they thought they had disposed of will be added back into their estate when calculating the overall value of the estate on death.
Also, the Revenue will want the individual who is "renting" the property (the former owner) to pay Income Tax on the "benefit" they are receiving of the small or non-existent rent. Again, the Revenue will work out what the true or Market Rent should be and ask for Income Tax to be paid by the tenant between what this proper rent shouild be and what they are actually paying.

If the former owner pays a proper rent, then the Inhertitance Tax disposal might work.

Other agencies are not happy about individuals disposing of assets to family members, especially social services of various sorts when it looks like the individual is deliberately impoverishing themselves by reducing their asset base in order to qualify for various benefits etc.

So, it is an extremely tricky and dangerous strategy to attempt.

Scotal - since 6 April 2008 the MAXIMUM rate of CGT is 18% (Taper Relief and Indexation was abolished - however).

Edited by Eric Mc on Wednesday 30th July 09:03

Thanks (and I thought you just handled the aircraft related queries!)

To be honest the figures are fairly accurate, so we're not talking huge anounts of money. Also, to be fair it's not about tax avoidance or anything such like, it's more about making life for the current owner easier by removing the mortgage.

I guess it's do-able, but I need to do some more digging

[big_rob_sydney]

Sorry, havent read all replies.

I have a flat that I want to transfer to my mums name. Its in my wifes name and I actually. I understand that with capital gains, you're entitled to claim something like 9200 quid each (so 18400 for us), plus whatever repairs, before being taxed on the profits. From this, theres a CGT rate applied (18% I think).

We spoke with a solicitor, who told us that we could do a transfer between family without too many problems in terms of stamp duty, but we’d still be liable for any CGT.

HTH.

[hornetrider]

What about that Tory couple who put their house into "trust" and used their 2nd Home allowance to pay a "rent" to the trust? How does that work? I presume their children will benefit from said trust when the parents die but can anyone explain how the whole trust thing works for you?

[Eric Mc]

hornetrider said:

What about that Tory couple who put their house into "trust" and used their 2nd Home allowance to pay a "rent" to the trust? How does that work? I presume their children will benefit from said trust when the parents die but can anyone explain how the whole trust thing works for you?

Trusts have been used for many years as a means of estate tax planning. However, the Revenue (naturally) are very keen to know and understand how each and every one of these trust set-ups work. It is now a legal requirement to submit details of any such trust arrangement to the Revenue IN ADVANCE of setting up the trust to obtain their approval as to whether it is a legitimate tax planning excerise or not.

[Eric Mc]

big_rob_sydney said:

Sorry, havent read all replies.

I have a flat that I want to transfer to my mums name. Its in my wifes name and I actually. I understand that with capital gains, you're entitled to claim something like 9200 quid each (so 18400 for us), plus whatever repairs, before being taxed on the profits. From this, theres a CGT rate applied (18% I think).

We spoke with a solicitor, who told us that we could do a transfer between family without too many problems in terms of stamp duty, but we’d still be liable for any CGT.

HTH.

"Repairs" CANNOT be offset against Capital Gains.

However, if you incurred "Enhancement Expenditure" on the property during your period of ownership, these costs can be added on to the original purchase cost. Enhancement Expenditure usually relates to money spent on Capital Improvements. The distinction between ordinary "Repairs" and "Enhancement Expenditure" is not always clear cut so an element of judgement is required to decide into which of these categories any such expenditure falls.

Don't forget that legal expenses, stamp duty, search fees etc incurred at the time of purchase and at the time of sale are also taken into account when computing the gain.

Finally, the individual Capital Gains Tax annual allowance is currently £9,600 per person.

[Deva Link]

...and nobody's even mentioned Pre-Owned Asset Tax (POAT)!

[Mikeyboy]

Sorry to revive an old thread but its something I've been discussing for some time with my Mum.

all of this advice works on the assumption that the property is "sold" to the family member. What is the accounting and legal standpoint if the property remains in the original persons name.
Can a document be drawn up that somehow gives more rights and a right to take profit in the case of the owners death or sale of the proerty at some later point?

[rich1231]

The solicitors involved in the transaction will be obliged to dob you in.

[siscar]

Mikeyboy said:

Sorry to revive an old thread but its something I've been discussing for some time with my Mum.

all of this advice works on the assumption that the property is "sold" to the family member. What is the accounting and legal standpoint if the property remains in the original persons name.
Can a document be drawn up that somehow gives more rights and a right to take profit in the case of the owners death or sale of the proerty at some later point?

You can lend the money and then take out a charge over the property such that you get the money back when the property is sold. Not sure about profit though (what profit in this market).

[Mikeyboy]

rich1231 said:

The solicitors involved in the transaction will be obliged to dob you in.

Afternoon Rich,
for what. Thats my point. I'm trying to work out if paying off my mums mortgage so shes not in the Shi'ite in a couple of years is possible without me just accepting it as being charity.