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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4800
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I took out a mortgage to purchase a property to be my son's

Resolved Question:

I took out a mortgage to purchase a property to be my son's main residence. He has been living there and paying the mortgage 9 years. The mortgage and property are in my name. My son can now take his own mortgage and wishes to take a mortgage to consolidate his debts and buy the property. As agreed all equity in the house will be gifted to him in the form of a gifted family purchase concessionary mortgage. Do i have to pay CGT on this or is there another way to do this. He has been paying mortgage so essentially do not view as a gift?
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
and welcome to the site. Thank you question.

Please clarify ...

By gifting him the amount equivalent to the equity in the house, you are effectively transferring the property to your son. Is this the case or are you still having an interest in the property?

Many thanks
Customer: replied 1 year ago.

I will have no interest in the property and will be sole ownership of my son as his main residence.

Expert:  taxadvisor.uk replied 1 year ago.
Thank you prompt reply.

I don't have good news , I'm afraid.

As you are transferring the interest to your son, you are effectively make a sale and this being a second home the gain would be chargeable to CGT. You sould claim your gains allowance against it and the balance would be taxed at CGT rate of 18%, 28% or a combination of both depending on your total income in the tax year including the gain.

He may be paying a mortgage but on a property that would belong to him and not you.

IHT implications -
As there is no consideration, it would be deemed a gift and a potentially exempt transfer purposes and fall in the seven year rule. More information on PET can be found here
https://www.gov.uk/inheritance-tax/gifts

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.

As I understand the situation, I may be better to gift this property to my son but would need to wait seven years to be legally his?

I have no interest in this property and have always viewed as his as he has essentially paid the mortgage. I am retired and am no longer a tax payer.

Example figures may be:

Property valued at £210,000

Payback of mortgage and loan to myself £130,000

Equity£80,000

What would CGT on this be (approx.)?

Customer: replied 1 year ago.

As I understand the situation, I may be better to gift this property to my son but would need to wait seven years to be legally his?



I have no interest in this property and have always viewed as his as he has essentially paid the mortgage. I am retired and am no longer a tax payer.



Example figures may be:



Property valued at £210,000


Payback of mortgage and loan to myself £130,000


Equity£80,000



What would CGT on this be (approx.)

Expert:  taxadvisor.uk replied 1 year ago.
Thank you reply.

First of all, gain is the difference between sale price/valuation at time of transfer and cost price. How the property was financed does not come in the calculation because the sale proceeds take care of it.

Say you bought the property for £150,000 and the curent value is £210,000 then your gain on sale/transfer is £60,000.

Your gains allowance in current tax year is £11,000 and this leaves the chargeable gain at £49,000.

Lets assume you pension and other income is equivalent to your personal allowance. This being the case, your potential CGT would be
31,865 at 18% = 5,735.70
17,135 at 28% = 4,797.80

making CGT £10.533.50.

The poperty would be legally his once the title deed has his name. The seven year rule is there to establish the worth of estate liabilty purpose only.

I hope this is helpful and answers your question.
Customer: replied 1 year ago.

Thank you reply. I currently hav no pension and no income but live off my savings until i receive a private pension one year from now - this will be below tax threshold - being £9000 pa.

.As alternative route, i.e. gifting the whole property to my son as an inheritance. Would the property be legally his and would he be able to remortgage? Also would he be liable tax if I die within 7 years?

Expert:  taxadvisor.uk replied 1 year ago.
Thank you reply.

As you have no pension/no income other than interest on savings, then the amount you would pay at 28% goes down and you would save approx £900 in CGT.

If you gift the property and have no interest in it, then the property would be legally your son's. If you did not survive years after the date of the gift, then there may be IHT payable on a sliding scale, provided your estate exceeded the threshold (currently £325,000).

But you would not escape CGT.

I hope this is helpful.
Customer: replied 1 year ago.

My current income is by using saving - there is unsufficient interest to provide an income.

Am I correct in thinking that if I now gift the property to my son - there would be no capital gains tax payable but only the possibility of an inheritance tax bill should i not live out the seven years. And if I did live the seven years - then no tax would be payable?

Expert:  taxadvisor.uk replied 1 year ago.
Thank you reply.

As the property being transferred is not your main residence, there will be CGT payable resulting from the transfer.

If you were to survive years after making the gift, the gift would escape inheritance tax irrespective of its value.

In the event you did not live years after making the gift, then it all depends on what the estate is worth (including the gift) at the time of death. If this figure is below the threshold , then no IHT payable.

I hope this is helpful and answers your question.
Customer: replied 1 year ago.

Thank you. It seems then even if I wish to gift the property to my son, CGT is still payable.

The only other factor I need to consider then is that. When I took out the mortgage on the property (which my son lives in), I advised the solicitor that my son would be living there and would be paying the mortgage. She suggested that I take out a deed of trust to recognise my son's financial contribution to the property.i.e. that some of the gains would be his entitlement based on his contributions. This has not been done but could this be done now and would this further reduce the CGT bill to me as a percentage of the gains would be protected son.

Expert:  taxadvisor.uk replied 1 year ago.
Thank you reply.

To be honest, you would need to consult a lawyer in this matter.

If your son has an interest in the property and is now taking over the rest then you should have done a similar exercise at the time to reflect what was being transferred at the time.

If you have the correct documentation to support it then yes you would further reduce CGT payable but may open the door to HMRC (non disclosure of an earlier gain).

I hope this is helpful.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited .

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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