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Hypothetical Question about house ownership...

saintscottofthenortham

By saintscottofthenortham,
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bridge too far

bridge too far

Posted
Posted
If she sells it for £1 I don't think CGT liability will be much of an issue! The clue is in the "G" bit.

 

I know of a woman who did just this. She bought a second home for £100K that she then sold to her son 3 years later for £1 although it was by then worth £120K. She had to pay CGT on the difference between the £100K and the £120K .

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bridge too far

bridge too far

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If you live in the property for 6 months, then there is no caapital gains tax to pay.

 

If that's the case (and I'm not arguing - I just don't know), then why is that if two people, who own their own houses, get married and sell one property, they have to pay CGT if they sell the property outside the current tax year.

 

Ah here's the definitive answer:

 

http://www.hmrc.gov.uk/cgt/property/basics.htm#6

 

"If you sell, give or otherwise dispose of a property (that's not your main home) to any other family member - or to a spouse or civil partner that you haven't lived with during that tax year - you'll have to work out the gain or loss made and any Capital Gains Tax due."

 

"If you sell, give or otherwise dispose of a property to your husband, wife or civil partner you don’t pay Capital Gains Tax as long as you've lived together for at least part of the tax year in which you made the disposal"

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Whitey Grandad

Whitey Grandad

Posted
Posted
I know of a woman who did just this. She bought a second home for £100K that she then sold to her son 3 years later for £1 although it was by then worth £120K. She had to pay CGT on the difference between the £100K and the £120K .

 

The tax would be on £20k less here annual allowance. There used to be other indexation allowances as well but I'm out of date.

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GenevaSaint

GenevaSaint

Posted
Posted
Lets just say for instance... My Mum brought a house, in cash for lets just say... £150,000. Could I then rent it for say??? £600/PCM. Could she then sell the property to me in say 2030 for say... £1?

 

I'm saying not a bloody chance. So someone please tell me i'm correct so I can shut the missus up.

 

Your mum would also be liable for income tax on the 600pcm.

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GenevaSaint

GenevaSaint

Posted
Posted
In addition, there could be inheritance Tax issues should your mum die with 7 years

 

I must admit I thought HMRC had closed out these issues/loop holes around inheritance tax; in that you couldn't now gift a house to a son or daughter before you die thus avoiding the tax. Could be wrong though!

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bridge too far

bridge too far

Posted
Posted (edited)
I must admit I thought HMRC had closed out these issues/loop holes around inheritance tax; in that you couldn't now gift a house to a son or daughter before you die thus avoiding the tax. Could be wrong though!

 

 

Avoiding tax by putting money in Trust for your children has been undertaken by Lord Ashcroft, it seems ;)

 

http://www.bbc.co.uk/news/uk-11415870

Edited by bridge too far
misleading sentence construction
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Whitey Grandad

Whitey Grandad

Posted
Posted
Get your Mum to sell it to you straight away as soon as she buys it - no CGT. Then treat the $600 per month as repaying the capital rather than as rent and no income tax on Mum either. Same position when you get to 2030 - but no tax to pay. Check this out with a qualified accountant first, but I'm sure it's right.

 

That would involve two lots of stamp duty, once when she buys it and once again when you do. Better if you buy it with a gift from her. You might have difficulty getting a low-rate mortgage should you need one, it depends on your deposit which needs to be at least 25%.

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Kingsbridge Saint

Kingsbridge Saint

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Posted
That would involve two lots of stamp duty, once when she buys it and once again when you do. Better if you buy it with a gift from her. You might have difficulty getting a low-rate mortgage should you need one, it depends on your deposit which needs to be at least 25%.

 

No stamp duty for first time buyers. So as grandad says - if Mum loans you the $150,000 and you buy the place then repay her at $600 per month that should work. Some issues around IHT and the residue of the loan in the event of her death which a good accountant can talk you through.

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GenevaSaint

GenevaSaint

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Posted
And I don't understand the income tax on the 600per month. Is rent liable for income tax? Because no-one I've known renting out a room has ever paid tax on it.

 

Yes the £600 is additional income, much as incomes/dividends from shares that are not part of an ISA.

 

If there was still a mortgage on the property the income could be offset against it. So if mortgage was over £600 then 0 tax liability, but if the mortgage was £500 then £100 "profit" would be taxable. That said there are other costs that can be offset to avoid some of the tax liability.

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bridge too far

bridge too far

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Posted
This makes me angry. Given how stupidly expensive it is to buy some bricks to live under, why the hell should it cost more money to give something you own to whoever the hell you like?

 

Taking any form of inheritence is disgusting IMO. Why does the government deserve any of that? If people have money to put by after all their tax is paid then why the **** should it get taxed again when passed on to family?

 

What would stop a parent or relative transferring their money bit at a time when they're old?

 

And I don't understand the income tax on the 600per month. Is rent liable for income tax? Because no-one I've known renting out a room has ever paid tax on it.

 

God I hate tax. My salary would be **** without any tax, so it doesn't exactly motivate me when they take enough to make me not afford anywhere to live. In fact at 50-60 hours per week the hourly rate would be really ****.

 

I think it's OK to rent out a room at £70 per week and not pay tax on it. But to receive a rental of £600 pcm on a second (i.e. not occupied by the owner) home is an investment returning an income. So tax applies as it does on any other form of investment / income.

 

Here you go:

 

"Surprising though it may be, the income from renting out a room in your home is usually tax free, thanks to a government incentive to encourage people to take in lodgers.

This is the deal:

- The rent-a-room scheme allows you to let part of your home and generate a tax-free income of up to £4,250 a year. This equates to a monthly rent of just over £350."

 

from: http://www.findaproperty.com/displaystory.aspx?edid=00&salerent=0&storyid=10078

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saintscottofthenortham

saintscottofthenortham

Posted
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Some good points made for me to look into. Cheers chaps.

 

As Adrian said, it does seem wrong that money that someone has made and paid tax on isn't able to do whatever the freak they want to with it. And if they hadn't have completely F*****d up our economy then Mortgage Lenders wouldn't be as blasted finicky and down right awkward as they are being currently (in my case anyhow), which would mean I didn't have to look into this process whatsoever. But unfortunatly, this countries suits are f*****g c***s.

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stevegrant

stevegrant

Posted
Posted
"Surprising though it may be, the income from renting out a room in your home is usually tax free, thanks to a government incentive to encourage people to take in lodgers.

This is the deal:

- The rent-a-room scheme allows you to let part of your home and generate a tax-free income of up to £4,250 a year. This equates to a monthly rent of just over £350."

That £4250pa figure is after expenses as well, so you could easily charge more than £350 a month. Any living cost can be included there, such as service charges, buildings and contents insurance, utility bills, probably even a cleaner if you've got one.

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toofarnorth

toofarnorth

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Posted
Yes the £600 is additional income, much as incomes/dividends from shares that are not part of an ISA.

 

If there was still a mortgage on the property the income could be offset against it. So if mortgage was over £600 then 0 tax liability, but if the mortgage was £500 then £100 "profit" would be taxable. That said there are other costs that can be offset to avoid some of the tax liability.

 

Only mortgage interest if offsetable againts income, not any capital payments. So unless it's a £600 a month interest only mortgage you'd have to pay tax on the £600 minus mortgage interest.

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CB Saint

CB Saint

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Posted

The difference between the pound and the market value of the house will be treated as a gift. Provided the mum survives 7 yrs after the gift or if her estate is less the the inheritance tax rate then there would be not more tax to pay.

 

I hate inheritance tax - its a tax on dying. Better off scrapping it and sticking a penny on the 50% band

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Whitey Grandad

Whitey Grandad

Posted
Posted
No stamp duty for first time buyers. So as grandad says - if Mum loans you the $150,000 and you buy the place then repay her at $600 per month that should work. Some issues around IHT and the residue of the loan in the event of her death which a good accountant can talk you through.

 

Good point, but it's only duty free up to a certain threshold, even for first- time buyers.

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OldNick

OldNick

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Posted
The difference between the pound and the market value of the house will be treated as a gift. Provided the mum survives 7 yrs after the gift or if her estate is less the the inheritance tax rate then there would be not more tax to pay.

 

I hate inheritance tax - its a tax on dying. Better off scrapping it and sticking a penny on the 50% band

that is not correct , you can only gift a certain amount each year. Not £100's of thousands as the nation would be doing it.
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OldNick

OldNick

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Posted
You can gift as much as you like.

 

You can only gift a certain amount TAX FREE. It used to be £3,000 p.a. but could (should) have gone up by now.

oops yes you are of course right but i was thinking this was about saving tax. If it was so easy to avoid tax I doubt there would be thousands of tax accountants looking for ways around the system
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saintscottofthenortham

saintscottofthenortham

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I think there are 'special exemptions' too - for example you can gift more than £3K (or is it now £5K) as a wedding present for your child / grandchild.

 

FFS... Does this mean I have to give my leader the pleasure of a ring on her finger.

 

On a serious note, I far kin hate this country for how the government want to sweat every single penny out of us by any means possible. The far kin bar stewards. I should be hearing this week wether I have to go down this route at all so fingers crossed I don't. Should have been done, dusted and moved in by now, and I think I have a very twitchy vendor on my hands at the moment as it was s'pose to be, and very much looked like being, a sail through, no problems purchase. That was until my prospective lender wrote to my Employers to ask for a letterheaded confirmation of my earnings due to me only being able to submit a copy of my previous years P60. Due to her being a bone idle, unbelievably useless "Accounts & Finance Manager", instead of her going to my file, taking my earnings and confirming it fo them, she just put down £18,000... About £10,000 less than what I earn. So immediately, without asking a single question, the bar star do's at a well known building society decided to pull the plug on me. Leaving me a fair few penny's down and having to start again. Just seems that lenders are being very very picky and just don't want to lend money at the moment...

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CB Saint

CB Saint

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Posted

I do have a legal solution for you

 

Get you mum to buy house, and gift it to your dad. (transfer in marriage are exempt).

Get your parents to divorce.

Get your girlfriend to marry your dad (or divorce your wife first and get her to marry him)

Get your dad to gift the house to your gf / ex wife (his now wife)

Get your dad and gf / wife to divorce

Get gf / ex to marry you

Get gf / ex to gift you the house.

Voila no inheritance tax

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bridge too far

bridge too far

Posted
Posted
I do have a legal solution for you

 

Get you mum to buy house, and gift it to your dad. (transfer in marriage are exempt).

Get your parents to divorce.

Get your girlfriend to marry your dad (or divorce your wife first and get her to marry him)

Get your dad to gift the house to your gf / ex wife (his now wife)

Get your dad and gf / wife to divorce

Get gf / ex to marry you

Get gf / ex to gift you the house.

Voila no inheritance tax

 

But a bloody fortune in divorce fees and marriage licences :D

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Whitey Grandad

Whitey Grandad

Posted
Posted
I think there are 'special exemptions' too - for example you can gift more than £3K (or is it now £5K) as a wedding present for your child / grandchild.

 

You can also bring forward the previous year's allowance if you haven't used it. Gifts made 7 years before death are also tax free no matter how large. Regular gifts 'out of income' are tax-free provided that they do not affect the donor's standard of living. For example, if your mum always gives you a Ferrari on you birthday and she can still live comfortably, then they are also tax-free.

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OldNick

OldNick

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Posted
Gifts made 7 years before death are also tax free no matter how large..
Are you sure about that, as that is a major loophole for avoiding death duties. Eg a house could be gifted in installments. i can't see that being allowed,and why would there be a maximum gift allowed if that is the case?
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bridge too far

bridge too far

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Posted

Right, here's the info straight from the horse's mouth, so to speak:

 

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm#2

 

So you COULD give away millions if you wanted to. However, should you die within 7 years of making such a gift, your estate would be eligible for IHT. Is that right? How would HMRC know? For example, when my mother died last year I gave each of my children a substantial sum from her estate (that had been willed to me). If I pop my clogs tomorrow, are those sums liable for inclusion for IHT (since they'd come out of my estate so to speak)?

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CB Saint

CB Saint

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Posted
Right, here's the info straight from the horse's mouth, so to speak:

 

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm#2

 

So you COULD give away millions if you wanted to. However, should you die within 7 years of making such a gift, your estate would be eligible for IHT. Is that right? How would HMRC know? For example, when my mother died last year I gave each of my children a substantial sum from her estate (that had been willed to me). If I pop my clogs tomorrow, are those sums liable for inclusion for IHT (since they'd come out of my estate so to speak)?

 

If your estate exceeded the IHT limits then yes (the current limit is £312K). Either your kids would have to pay up or your estate.

 

As I said before there is nothing fair about IHT.

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