Buying a house cheap from a relative.

[Happy Face 29]

A few years back my brother bought a flat my mother was after but couldn't afford at the time. Now she's in a position to buy but the value of it has almost trebled. I assumed that she could just pay him what he bought it for back then but the financial advisor reckons my brother has to sign some forms to say he won't declare bankrupcy and stuff.

 

Anyone heard of this? Why can't he just sell her the flat at an agreed price?

[Gemmill 44113]

I vaguely remember something like this from when I did my chartered exams, but I can't remember the details. Sorry!

[Happy Face 29]

I vaguely remember something like this from when I did my chartered exams, but I can't remember the details. Sorry!

 

Apology accepted.

[Gemmill 44113]

Actually, I think what I'm talking about related to inheritance tax and capital gains.

 

So I'm not sure why your brother has to sign something in this instance. Although, it's probably just because he's selling an asset at a discount which would have to preclude him from declaring bankruptcy in the near future. Imagine if you were in financial difficulties and wanted to get shot of any assets prior to declaring, so that they weren't seized by creditors. Selling a house off cheap to a relative would be a good way of doing this and leaving yourself with less assets to pay off your creditors, whilst keeping the house in the family (your mam could sell it back to him once the dust has settled).

 

Makes sense really.

[Happy Face 29]

Actually, I think what I'm talking about related to inheritance tax and capital gains.

 

So I'm not sure why your brother has to sign something in this instance. Although, it's probably just because he's selling an asset at a discount which would have to preclude him from declaring bankruptcy in the near future. Imagine if you were in financial difficulties and wanted to get shot of any assets prior to declaring, so that they weren't seized by creditors. Selling a house off cheap to a relative would be a good way of doing this and leaving yourself with less assets to pay off your creditors, whilst keeping the house in the family (your mam could sell it back to him once the dust has settled).

 

Makes sense really.

 

Cheers

 

I see your point I suppose.

 

How does it work if she pays full whack and then he just transfers the difference back to her? Would that gift be deemed taxable?

Edited October 11, 2006 by Happy Face

[Rob W 0]

I think he should be bloody carefull - I think they'll come after him on the grounds its not an arms length transaction and its not at "market" price - and they have a database of property prices - they'll be after Stamp Duty and CGT

 

He may be able to sell it to her at "market" price and she then gives him the cash back but if she dies within 7 years they'll have their share of the cash - the normal thing is to take out a decreasing term insurance on your Mum's life for a 7 year period for the value of the "gift"

[Happy Face 29]

I think he should be bloody carefull - I think they'll come after him on the grounds its not an arms length transaction and its not at "market" price - and they have a database of property prices - they'll be after Stamp Duty and CGT

 

He may be able to sell it to her at "market" price and she then gives him the cash back but if she dies within 7 years they'll have their share of the cash - the normal thing is to take out a decreasing term insurance on your Mum's life for a 7 year period for the value of the "gift"

 

Good idea.

 

Ta

 

EDIT: Isn't stamp duty only payable on transactions over 50K or something?

Edited October 11, 2006 by Happy Face

[Gemmill 44113]

Actually, I think what I'm talking about related to inheritance tax and capital gains.

 

So I'm not sure why your brother has to sign something in this instance. Although, it's probably just because he's selling an asset at a discount which would have to preclude him from declaring bankruptcy in the near future. Imagine if you were in financial difficulties and wanted to get shot of any assets prior to declaring, so that they weren't seized by creditors. Selling a house off cheap to a relative would be a good way of doing this and leaving yourself with less assets to pay off your creditors, whilst keeping the house in the family (your mam could sell it back to him once the dust has settled).

 

Makes sense really.

 

Cheers

 

I see your point I suppose.

 

How does it work if she pays full whack and then he just transfers the difference back to her? Would that gift be deemed taxable?

 

I think it only becomes taxable in the event of his death if he dies within the next 7 years. If he makes it through the next 7 years without biting it then there are no tax implications.

 

Is this his main residence he's selling btw? Or is it a second property?

[Gemmill 44113]

HF, if it's not his main residence he'll be liable to pay CGT, and they won't calculate it based on the price he sells it to your mam at. It'll be calculated based on the market value of the property, which by the sounds of it could be a canny bit compared to purchase price.

[Happy Face 29]

HF, if it's not his main residence he'll be liable to pay CGT, and they won't calculate it based on the price he sells it to your mam at. It'll be calculated based on the market value of the property, which by the sounds of it could be a canny bit compared to purchase price.

 

It's not his residence, no.

 

Cheers, I'll do some reading up on Capital Gains tax, see what he's liable for (I assume that's what CGT is).

[Gemmill 44113]

http://www.hmrc.gov.uk/leaflets/cgtfs1.htm#b13

 

Have a look there. The exemption for 2006/7 is £8,800 so basically take the market value of the house, less what he paid for it, take off your £8,800 and he's liable for tax on the rest.

[Kevin Carr's Gloves 3788]

HF, if it's not his main residence he'll be liable to pay CGT, and they won't calculate it based on the price he sells it to your mam at. It'll be calculated based on the market value of the property, which by the sounds of it could be a canny bit compared to purchase price.

 

It's not his residence, no.

 

Cheers, I'll do some reading up on Capital Gains tax, see what he's liable for (I assume that's what CGT is).

 

Can't he just let her live there?

[Happy Face 29]

http://www.hmrc.gov.uk/leaflets/cgtfs1.htm#b13

 

Have a look there. The exemption for 2006/7 is £8,800 so basically take the market value of the house, less what he paid for it, take off your £8,800 and he's liable for tax on the rest.

 

 

Ouch, that doesn't sound good.

 

I think I'll try and convince them to stay as they are.

 

Thanks for all your help.

[Gemmill 44113]

No bother. There might be some arrangement he can come to re charging rent, but obviously that would be a long term thing and would be taxable income. You're best off talking to someone who deals in personal tax issues though cos I've not dealt with anything like this since my exams 6 or so years ago.

[Rob W 0]

WHoever hands over the cash as part of a Deal is making "a gift with reservation" and the tax man will come calling if the GIVER dies within 7 years so they're the ones who have to be covered by the insurance

 

He's buggered if its NOT his main residence unless he's been holiday letting it

 

We've been thru this recently acting as Executors and you have to be very careful - if he sells it to his Mam and then she dies will she be giving it back to him? he might finish up with TWO sets of tax to pay for example - one CGT on the sale to her and then IHT when she wills it back to him

 

He needs proper advice here from a decent solicitor or better still an accountant who specialises in this sort of thing - a few hundred quid spent there will save him thousands or tens of thousands later.

[Happy Face 29]

WHoever hands over the cash as part of a Deal is making "a gift with reservation" and the tax man will come calling if the GIVER dies within 7 years so they're the ones who have to be covered by the insurance

 

He's buggered if its NOT his main residence unless he's been holiday letting it

 

We've been thru this recently acting as Executors and you have to be very careful - if he sells it to his Mam and then she dies will she be giving it back to him? he might finish up with TWO sets of tax to pay for example - one CGT on the sale to her and then IHT when she wills it back to him

 

He needs proper advice here from a decent solicitor or better still an accountant who specialises in this sort of thing - a few hundred quid spent there will save him thousands or tens of thousands later.

 

Thanks for the wise words. I shall pass them on.

 

Bloody Gordon Brown!

[Rob W 0]

It all has to be paid for somehow - amazes me how people want low taxes but high standards of public services TBH

[Gemmill 44113]

To be fair Rob, the lad bought a house for his mother because she couldn't afford it at the time. Now she can afford it and he wants to sell it on to her at a discount, making no profit on the sale himself, but because of a boom in the housing market the revenue want to hit him with a shitload of CGT for the privilege. I can see how if I was in that position it would seem a bit unfair.

 

Rules are rules and that's the way it goes, but it doesn't make you any happier to have to write the cheque.

[Rob W 0]

To be fair Rob, the lad bought a house for his mother because she couldn't afford it at the time. Now she can afford it and he wants to sell it on to her at a discount, making no profit on the sale himself, but because of a boom in the housing market the revenue want to hit him with a shitload of CGT for the privilege. I can see how if I was in that position it would seem a bit unfair.

 

Rules are rules and that's the way it goes, but it doesn't make you any happier to have to write the cheque.

 

 

Tell me about it (with feeling) I really DO sympahise - I just don't want him getting screwed TWICE

 

He'd be better off leaving it in his name I suspect and his ma can spend the cash or even give it to him - she can give him £7k a year withoout anyone paying any tax - or buy a second home in Costa Teeside or whatever

[Happy Face 29]

To be fair Rob, the lad bought a house for his mother because she couldn't afford it at the time. Now she can afford it and he wants to sell it on to her at a discount, making no profit on the sale himself, but because of a boom in the housing market the revenue want to hit him with a shitload of CGT for the privilege. I can see how if I was in that position it would seem a bit unfair.

 

Rules are rules and that's the way it goes, but it doesn't make you any happier to have to write the cheque.

 

 

Tell me about it (with feeling) I really DO sympahise - I just don't want him getting screwed TWICE

 

He'd be better off leaving it in his name I suspect and his ma can spend the cash or even give it to him - she can give him £7k a year withoout anyone paying any tax - or buy a second home in Costa Teeside or whatever

 

That's what I'll be telling them to do like. Think my brother's getting peeved he can't buy more property of his own though, seeing as it'll remain an ongoing concern of his.

[Gemmill 44113]

To be fair Rob, the lad bought a house for his mother because she couldn't afford it at the time. Now she can afford it and he wants to sell it on to her at a discount, making no profit on the sale himself, but because of a boom in the housing market the revenue want to hit him with a shitload of CGT for the privilege. I can see how if I was in that position it would seem a bit unfair.

 

Rules are rules and that's the way it goes, but it doesn't make you any happier to have to write the cheque.

 

 

Tell me about it (with feeling) I really DO sympahise - I just don't want him getting screwed TWICE

 

He'd be better off leaving it in his name I suspect and his ma can spend the cash or even give it to him - she can give him £7k a year withoout anyone paying any tax - or buy a second home in Costa Teeside or whatever

 

Aye that's probably his best bet. Otherwise he'll be handing over the bulk of the proceeds from the sale to the tax man.

 

I remember studying tax for my exams, and every time you thought there might be a loophole the lecturer would go "But of course the revenue have considered this and...". Aye, of course they have.

[Rob W 0]

Unless you have millions of course...........................

[peasepud 59]

Aye, we'll get our bit dont you feckin worrry!