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Buying/Selling a second home and tax


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Hi, I'm wanting to purchase a second home Ive seen and have a few questions if anyone can help.

My daughter and partner can't get a morgage at the moment because a ccj he's just got on his name recently for a small amount he owed a credit card company some 6 years ago.

My question is: if I buy a second home could I let them live there rent free for a few years until they could get a morgage and buy me out for what I paid for it (prob 5-6 years time) and would there be any capital gains tax etc to pay?

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Speak to a tech @ HMRC,you'll go straight to an advisor at the main helpline.Advise him/her that you have a CG question and they will transfer you immediately to a tech.If one is not available they will a range a call back within five WDays.

Don't expect the initial advisor to answer anthing other than basic information regarding capital gains.Plus you are you going to need factual advise on both IFP and CG.

You may well get some good advise on here,but things change all the time and this Government is already looking at moving the thresholds again.

A technician will have information on current legislation and any pending changes.

Edited by Davyo
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surely its easier and cheaper to go through a credit agency to get rid of the CCJ history, than it is to pay double stamp duty on a purchase.

If you want to help you would be better off stumping up the deposit on the purchase of a new build property on The Help To Buy Scheme before the scheme stops.

If you find a good mortgage broker they can arrange a mortgage with NO extra charges as soon as the CCJ history is removed.

Once they've purchased the property you can always use some more of your capital to pay off the 20% Help To Buy balance for them before interest gets added to it year on year.

Because of your financial involvement you will need a solicitor to draw up a deed so that all monetary splits are in black and white just in case your daughters partner is under the illusion that he is entitled to 50% of the value of the property when the relationship all goes down the pan in a few years time.

I'm only speaking from experience here.

I tried your rent free version some fifteen years ago and it got very messy !!!

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Speak to a tech @ HMRC,you'll go straight to an advisor at the main helpline.Advise him/her that you have a CG question and they will transfer you immediately to a tech.If one is not available they will a range a call back within five WDays.

Don't expect the initial advisor to answer anthing other than basic information regarding capital gains.Plus you are you going to need factual advise on both IFP and CG.

You may well get some good advise on here,but things change all the time and this Government is already looking at moving the thresholds again.

A technician will have information on current legislation and any pending changes.

Will probably give them a ring tommorow and see what they say thanks davyo

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i sold a bungalow to one of my daughters for just under half its value and less than i paid for it,the building society were happy with it,there was no tax to pay.the only thing i had to do was sign a declaration that i was not planning to go bankrupt and that i would not be living there,to be honest her solicitor was a pain in the rear as kept on about money laundering.its seems you cannot easily help your children in this country,

Edited by bostonmick
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i sold a bungalow to one of my daughters for just under half its value and less than i paid for it,the building society were happy with it,there was no tax to pay.the only thing i had to do was sign a declaration that i was not planning to go bankrupt and that i would not be living there,to be honest her solicitor was a pain in the rear as kept on about money laundering.its seems you cannot easily help your children in this country,

Inland revenue treat that as fraud and money laundering unfortunately.

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surely its easier and cheaper to go through a credit agency to get rid of the CCJ history, than it is to pay double stamp duty on a purchase.

If you want to help you would be better off stumping up the deposit on the purchase of a new build property on The Help To Buy Scheme before the scheme stops.

If you find a good mortgage broker they can arrange a mortgage with NO extra charges as soon as the CCJ history is removed.

Once they've purchased the property you can always use some more of your capital to pay off the 20% Help To Buy balance for them before interest gets added to it year on year.

Because of your financial involvement you will need a solicitor to draw up a deed so that all monetary splits are in black and white just in case your daughters partner is under the illusion that he is entitled to 50% of the value of the property when the relationship all goes down the pan in a few years time.

I'm only speaking from experience here.

I tried your rent free version some fifteen years ago and it got very messy !!!

Thanks for taking the time to reply, some really useful information there.dont want it to cost a fortune in cgt etc in the long run.

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Just spoke to the daughters partner and it turns out when the ccj was issued ( November) he paid it straight away so it may not even be entered on the register. He's going to make a few calls tommorow to see what if anything he's got on his credit check and get back to me.

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Inland revenue treat that as fraud and money laundering unfortunately.

I actually lost over 80k on the deal.so doubt anyone with half a brain could consider that laundering I also bought it on a mortgage so again all traceable.the only way there could be any implications of fraud or laundering is if there was any cash changing hands over and above the legal side.family discounted sales are commonplace and banks and building societies accept this.

Edited by bostonmick
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Only thing I would add is make it clear if your giving your daughter say the deposit for the house or lending it her, I had issues after what was a grey area with in laws. We borrowed some cash which they were good enough to lend us, when we payed them back there was another amount we owed them which we thought had been a gift many years ago, it made things very awkward for some time.

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I actually lost over 80k on the deal.so doubt anyone with half a brain could consider that laundering I also bought it on a mortgage so again all traceable.the only way there could be any implications of fraud or laundering is if there was any cash changing hands over and above the legal side.family discounted sales are commonplace and banks and building societies accept this.

The only time this becomes an issue is regarding CGT. If you died within 7 years of the transaction taking place then the house would have been valued at the market value and not the sale value in respect of your estate.

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I actually lost over 80k on the deal.so doubt anyone with half a brain could consider that laundering I also bought it on a mortgage so again all traceable.the only way there could be any implications of fraud or laundering is if there was any cash changing hands over and above the legal side.family discounted sales are commonplace and banks and building societies accept this.

They may not class it as money laundering but they could see it as tax avoidance as you have transferred any gains you made on the property to your daughter, she could sell the property at market value and make a nice tax free profit.

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They may not class it as money laundering but they could see it as tax avoidance as you have transferred any gains you made on the property to your daughter, she could sell the property at market value and make a nice tax free profit.

As I said in my post you can 'gift' it at whatever value you want. Gifts only become an issue if you die within 7 years in which case the 'gift' would be valued at market value.

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So who would be liable for any gains made on the property, should he die within the 7 years?

His Estate.

 

And the issue of 'gifts' and death within 7 years does not relate to CGT but inheritance tax.

Edited by AVB
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They may not class it as money laundering but they could see it as tax avoidance as you have transferred any gains you made on the property to your daughter, she could sell the property at market value and make a nice tax free profit.

And the point of doing that would be?.It is her home she got it at the price as she stood no chance of getting on the crazy housing ladder.ifshe sold it would cost her as much to buy another maybe more.so no gain there for anyone.of course I could have sold it for market price and given her a lump towards another property but she wanted this one as it's been in the family for years.lets not forget the millions of people who bought their council houses for very little then went on to sell at a much higher price and pay no tax of any kind.

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I am NOT an expert, but there are some areas to particularly make sure that you do have legal/financial advice on (I have in the past done something slightly similar).

  1. If you at some stage sell anything at a 'non market' value - you may be liable to tax (transfer/inheritance, capital gain, stamp duty) at the realistic market value - this is to prevent one selling ones property to someone at 'knock down value' to avoid taxes due
  2. If you allow someone to live in a property either rent free or below market rent, the inland revenue may require that you pay income tax not on the reduced (or zero) rent you receive, but on the market rent
  3. If you die before selling on, inheritance tax would be levied at the market value (no Capital Gain is payable on death - but inheritance tax potentially is dependant on the overall estate value). Even if you 'transfer' free of charge the property, inheritance tax may be payable if you die within 7 years of the transfer.

These rules are in place because it is basically not legal to pass 'wealth' to ones offspring/family free of tax - and anything that appears to do so (in the form of financial help) can therefore be taxable. There are certain rules at present that can be used - the one that may fit your situation being a 'potentially exempt transfer' (PET). In this you transfer the property/asset at the start of a 7 year period ....... and the inheritance tax liability decreases to zero on a sliding scale over 7 year so that if after 7 years you are still alive - there is no inheritance tax due on that transfer. The rules are quite complex and the transfer must be legally valid and dated - and crucially - you can not retain any beneficial interest (i.e. receive a rent or pay part of expenses, live there or anything) in a transferred property subject to PET status.

 

A solicitor would advise if a 'trust' is beneficial - as there can be some advantages in putting a property in trust for your descendants, but again this is an area that needs a legal expert to advise, because some trusts end up loosing the advantages they are supposed to gain by not following the exact letter of the rules about trustees, and who can/can't benefit from the trust.

 

There are also I believe some special rules that allow you to 'assist' someone (such as helping with higher education, but not I believe school fees) - but this must be clearly from 'surplus income' and not be transferring 'wealth' or 'capital'. Again - you need professional advice because I believe the legitimate areas this can be used for will be subject to strict limitations - and you must be able to demonstrate that you have sufficient surplus income to provide the funds.

 

Seek good legal and financial advice, and have any documents drawn up properly.

Edited by JohnfromUK
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The extra stamp duty is an EXTRA 3% of the total value, plus what the initial stamp duty would have been (hence me saying extra).

 

Just saying as some people are saying the stamp duty would be double, but if we used a property with a value of £250k as an example the initial stamp duty would be £2500 but the extra 3% would be £7500.

 

As we can see it's not double, it's quadruple!! Scary stuff.

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