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Ask Clare Your Own Question

Clare
Clare, Solicitor
Category: Law
Satisfied Customers: 33304
Experience:  I have been a solicitor in High Street Practice since 1985 with a wide general experience.
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In sept 2011, my parents and myself purchased a flat for me

Customer Question

In sept 2011, my parents and myself purchased a flat for me to live in. The deeds are in their name. The property has an outstanding mortgage of 190k and is currently valued around 360k. We are now going to transfer the deeds into my name. Can you clarify what the tax implications are and whether any stamp duty would be payable?
Submitted: 3 years ago.
Category: Law
Expert:  Clare replied 3 years ago.
Hi
Thank you for your question.
My name is Clare and I will do my best to help you but I need some further information first.
How much is the property worth now?
What is happening with regard to the mortgage?
Clare
Customer: replied 3 years ago.
Hi Clare
The property is worth around 360k. It is actually mortgage free, as my parents raised a mortgage against their existing home to make the purchase. Once transferred into my name, I would look to raise about 230k in order to pay off that mortgage. My question is specifically around whether there will be a capital gain and whether stamp duty will be payable? My understanding is that as long as my parents live for at least another 7 years, then there will be no inheritance tax, but would appreciate your advice.
The flat was bought for 260k
Expert:  Clare replied 3 years ago.
Hi
For clarity are you intending to raise a mortgage to pay off the £230,000?
Clare
Customer: replied 3 years ago.
Yes I am
Expert:  Clare replied 3 years ago.
Hi
Then it would be sensible to in fact "purchase" the property from your parents for £230,000 and the gifted deposit of the balance from your parents.
This immediately reduces the exposure to Inheritance Tax if your parents do die within 7 years.
There will be no CGT payable as your parents will have no gains - but Stamp Duty will be payable on the whole value
I hope that this is of assistance - please ask if you need further details
Clare
Customer: replied 3 years ago.
Hi Clare,
Thanks for your answer- can you explain what you mean by 'and the gifted deposit of the balance from your parents'.

Is there not an issue as far as HMRC is concerned if the property is clearly 'sold' at a vastly reduced price?
Expert:  Clare replied 3 years ago.
Hi
You will in fact purchase the property for the market value - but your parents will be gifting you the balance between the mortgage and the sale price
Clare
Customer: replied 3 years ago.

Thanks Clare,


Is this the standard way of dealing with this situation or are there other options I should perhaps consider?


 


 

Expert:  Clare replied 3 years ago.
Hi
The other way is for the property to be gifted to you - and hope your parents survive for the seven years.
If not then the full amount could be liable for Inheritance Tax - as opposed to the smaller amount in the other option.
Otherwise there is no difference involved
Clare

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