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Aston Lawyer
Aston Lawyer, Solicitor
Category: Law
Satisfied Customers: 10610
Experience:  Solicitor LLB (Hons) 23 years of experience in Conveyancing and Property Law
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I want to (sell my property first) purchase a property from

Resolved Question:

I want to (sell my property first) purchase a property from my step-father (who currently resides abroad but soon to retire back to UK) in the most tax efficient way. There will be a financing gap of approx £200k. Would it be better for this to be sold to me at what I can afford (@£200k less than possible market value) and pay Stamp Duty at market value, OR for my step-father to finance the gap either in form of gift or loan? If this cant be answered as so complex, who would be best to approach?
Many thanks!
Submitted: 4 years ago.
Category: Law
Expert:  Aston Lawyer replied 4 years ago.

 

Hi there,

 

Thanks for your enquiry.

 

Will you be having a Mortgage to finance your purchase?

 

I take it that your step-father is happy to sell at the reduced value and does not require repayment of the £200,000 shortfall at any time in the future?

 

I look forward to hearing from you.

 

Kind Regards

AL

Customer: replied 4 years ago.

Hi


 


Yes I will be ideally porting mortgage of @£250k


 


My step-father will want to minimise tax but not avoid tax. He has (with my mother) two other mortgaged properties in London. The property in question is currently rented out via estate agent management until July 2014 - which is when I want to purchase from him.


 


My step-father is aware of our desire (as the property suits our family) and he was already considering selling and at some point helping us financially. This for us would be the ideal property/way to do it. We could either pay him back (part or all) over time, or he keep a share in the property or he may even gift it... I am trying to do my due-diligence, partly to help our "case" with him - hence my questions today


 


Their name is XXXXX XXXXX mine, if that makes any difference....


 


Hopefully above is clear!


 


Many thanks!



Erol


 

Expert:  Aston Lawyer replied 4 years ago.

 

Hi Erol,

 

Thanks for your reply.

 

From a Stamp Duty (SDLT) point of view, this is calculated on the Purchase price- so, if you were only to pay say £250,000 then SDLT of £2,500 would be payable. If the Price you pay is over £250,000 then SDLT is payable at a rate of 3% of that price.

So, the lower the consideration, the lower the SDLT is, as SDLT is not payable on the market value of the property- it is payable on the amount you pay.

 

From your step father's tax point of view, Capital Gains Tax (CGT) may be payable upon any Sale to you. Unlike SDLT, CGT is calculated on the market value of the property at the date of the Sale, rather than the price the property is actually sold for.

CGT is payable on any property you own which is not your principal place of residence,if any increase in value of the property has taken place from the date he acquired the property and the date he sells it or gifts it.

 

I hope this sets out the legal position, but please let me know if you require further clarification.

 

If not, I would be grateful if you could leave positive feedback.

 

Kind Regards

AL

Customer: replied 4 years ago.

Many thanks. Hopefully just a couple of Yes/No answers related to my original questions: My step-father will be retired from this September (with I believe a final salary pension) and will be a higher rate tax payer on his return to the UK. I think this means a CGT rate of 28% of any gain based on present market value less costs. If he sold the property to Joe Bloggs, he would have to pay this any way, right?


 


So, if he sold for £1m (and costs were £500k), he'd pay CGT of £140k and be up £360k less @ £25k estate agent fees = £335k


 


If he sold to us for £750k, he'd pay same CGT, only be up £110k. So £225k would be the "gap to make up" right?


 


I would only in theory save on Stamp Duty in our purchase, but only £10k (buying at £750k vs £1m)....


 


This might be too big a gap... :-(

Expert:  Aston Lawyer replied 4 years ago.

 

Hi again,

 

Your step father will be liable for CGT whether he sells to you or Joe Bloggs, at 28% at the current market rate.

 

So, yes, your calculations are correct, I'm afraid.

 

And yes, you just save on the SDLT.

 

I hope this confirms the position.

 

Kind Regards

AL

 

 

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