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TonyTax
TonyTax, Tax Consultant
Category: Tax
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My parents home is currently in my name as I arranged the

Customer Question

My parent's home is currently in my name as I arranged the mortgage. I am now paying off the mortgage and wonder whether it is better for the property to remain in my name, or for it to be signed over to my parents. Is there a capital gains tax implication?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you give me the history of the situation please. Is the property an ex-council property bought under the right to buy scheme? Was the house bought before 31 March 1988? Have you lived in it at any point since it was bought? If your parent's have wills, is the property mentioned in them? Who paid the interest and capital repayments during the life of the mortgage? Are you paying off the mortgage from your own funds?
Customer: replied 2 years ago.

Hello. I raised the mortgage to enable my parents to move (they are elderly and the stress of buying and selling simultaneously would have been too much for them). They then sold their property approximately 6 months later. The funds from their property sale have been used to pay off part of the mortgage. The property remains in my name as it is part of an estate and I am a director for the management company (which I can only be if I own the property). I believe my parents will mentions that, when they pass, their property is equally shared between myself and my sibling. As part of the mortgage condition the current flat had to be classed as my main residence. Upon paying off the mortgage my parents would like the flat to remain in my name so that I continue in my director role. But my main residence will then be a different property, and my parents will remain living in the flat. In the event of my parents passing, we (the family) have an agreement that, although I own the property, it will be divided 50/50 at that point between myself and my sibling. The property is growing in value and I wondered what the capital gains tax situation would be if I continue to own the flat and then sell it when my parents pass. Would capital gains tax be due? I would estimate that the property could increase in value between £50 - 75k in the next 5 years. I just want to ensure I am always on the correct side of the tax laws. Would it be better to change the ownership of the flat to my parents? This was originally the plan but I am now wondering whether this in itself has any tax implications. My parents do not pay any rent on the property and they pay all the utility bills. Thank you.


 

Expert:  TonyTax replied 2 years ago.
Thnaks.

Can you confirm whether the property was bought before or after 31 March 1988 please.
Customer: replied 2 years ago.

Hi - it was bought in 2012.

Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I draft my answer. There is a fair amount to consider so please bear with me.
Expert:  TonyTax replied 2 years ago.

Hi again.

You might refer to the HMRC helpsheet HS283 for the basics on CGT and the main residence.

The fact that you can only be a director of the management company if you own the property is a problem as far as tax is concerned. The fact that it has to be designated as your main home for the mortgage could be a problem but not as much as the directorship/ownership requirement. That your parents used money from the sale of their house to pay off part of the mortgage is an advantage and if their wills do mention it, that's even better.

If you sell a property that you have never lived in during your ownership of it or gift it to somebody with whom you are connected, then you may have CGT to pay if it has increased in value since you bought it and any gain is more than the annual CGT exemption which is currently £11,000. Whether you should accept that it is yours for tax purposes and give it to your parents will partly depend on the increase in its value since it was bought.

Any gift would also be a potentially exempt transfer for Inheritance Tax purposes but you would take account of the money used to pay off part of the mortgage to reduce the amount of the gift.

Its obvious that the intention was for your parents to own the property but you bought it yourself as you didn't want them to have the stress of buying and selling at the same time. The fact that it is not in their names is a requirement of your employer and the mortgage provider.

You really have three options:

1 Give your parents the property before the gain gets too much larger, don't report it to the tax office as a disposal by yourself and if you are asked about it by the tax office, you can give them the explanation you have given me as to why it was bought in your name and say that the balance owed on the mortgage is a loan from you to your parents, though you will have no documentation for that.

If the tax office say that there is a taxable gain, it may be that the CGT liability which may arise from a gift to them of the property now (less what they have paid off the mortgage which you could say was a partial purchase from you of a share of the property) is manageable for you. The maximum CGT liability will be 28% of the gain over and above £11,000.

2 Gift the property to your parents and report the gain. You might try to claim main residence relief to negate any CGT liability but I think the tax office would challenge such a claim. Such a claim could also impact on the home you actually live in.

3 Keep the property and sell it after your parents have passed away. I would expect the tax office to resist a claim for main residence relief as you will probably have never lived there, notwithstanding the fact that it has to be designated as your main home due to the terms of the mortgage and your directorship. The tax office will probably say all that is irrelevant, though they may play it the other way if you gift the property to your parents, you don't report a gain, they ask you why you didn't report it (they may never ask) and you cite the reasons for not reporting a gain, one of which would be that you were merely giving back to your parents what was always morally theirs.

I hope this helps but let me know if you have any further questions.

Customer: replied 2 years ago.

Many thanks for such an informative reply.


May I just clarify one part please? The need to be an owner to be a director is about the non-paid director posts for the whole estate. Residents who own properties can then be directors on the board to decide maintenance issues and costs etc. It is not an employment post and it is undertaken on a voluntary basis with no financial remuneration. Does that make any difference to the advice you have offered in relation to potential tax problems?


My understanding, from your advice, is that it is best to transfer the ownership to my parents. I am assuming I need to do this via a solicitor? Would a solicitor then have to address CGT as part of the transaction? I am sure the value increase in the property could realistically remain below the personal allowance of £11k.


Thank you

Expert:  TonyTax replied 2 years ago.
Based on the information you have given me in your latest post, whilst it is an unpaid position, the tax office may still use it against you if they make the connection which they may not. If the increase in value between the 2012 purchase date and the present day is £11,000 or less, then you may be best off transferring the flat to your parents. However, if you do that, you need make sure that there are no Inheritance Tax implications for their estates when they die. If the first of your parents to pass on leaves all their assets to the surviving parent,provided the combined estates are not more than £650,000 in value, there will be no IHT as the unused nil-rate band of the first to pass can be used by the estate of the second to pass.

You can do the transfer yourslef using the appropriate forms which you can find on the Land Registry website but, if it were me, I'd use a solicitor. They would have no responsibility for CGT but they may mention it to you.

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