How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask taxadvisor.uk Your Own Question

taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4879
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
54961312
Type Your Tax Question Here...
taxadvisor.uk is online now

Dear All, I am looking to make a cash purchase of a property

Resolved Question:

Dear All,
I am looking to make a cash purchase of a property at below market rate to buy my father's house off him and rent it back at below market rent rate (I would pay income tax on rent, that isn't the issue).
My father only wants around 75% of the value of the house to clear his outstanding mortgage, however, at a future date any sale would be liable to CGT, which, at current property value would amount to around £7.5k ish after allowance (£38k-11k*0.28).
What are the tax implications for purchasing at market rate (150k), then him gifting the difference between the purchase price and the outstanding mortgage back to me (£38k)? Effectively the purchase price goes through at full market rate but the net exchange of funds is £112k. All assets are below £325k for IHT purposes.
Many thanks in advance.
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.
Hello and welcome to the site. Thank you for your question.

You have clarified the position as far as inheritance tax implications are concerned.

If you father was to sell the property to you at below market value, HMRC would regard the sale to have taken place at market value because it is to a connected person.

As it is your father's main residence, any gain arising from sale of it to you would be covered by private residence relief and therefore no CGT payable.

The sum of £38k gifted to you would be treated as a potentially exempt transfer for IHT purposes and the seven year rule would apply.. if he was to survive for 7 years after making the gift, then the gifted amount is outside the scope of IHT. As you have stated in your introduction, his assets are below the threshold of IHT (£325k).

You as a recipient of the gift would receive it tax free as there is no tax on gifts in the UK.

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.

Thanks for the prompt reply.

Please conform the first part of your reply...

'If you father was to sell the property to you at below market value, HMRC would regard the sale to have taken place at market value because it is to a connected person.'

Does this mean that they see the sale as 112k or 150k? This is where the CGT issue comes in.

The rest of the reply was explained perfectly, thank you!

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

If your father was to sell the property to you for £112k against a market value of £150k, HMRC would take the market value of £150k as sale proceeds and calculate the gain and CGT based on this figure.

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

One last time to ensure I am fully with you...

The acquisition cost is what the individual paid to buy the asset. However, market value at the acquisition date is normally substituted if the individual did not pay market value for it.

Hence, although I would pay 112k, HMRC would see the sale as 150k. In practice this means that if I were to dispose of the property at some date in the future at say a value of 170k the amount due would be 2.5k (((170-150)-11)*0.28)))

Am I correct in this assumption?

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

You are spot on with your understanding.

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 for it by Just Answer.
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4879
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 1 year ago.
I thank you for accepting my answer.

Best wishes.

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
 
 
 

Meet The Experts:

 
 
 
  • Sam

    Sam

    Accountant

    Satisfied Customers:

    7088
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
< Previous | Next >
  • http://ww2.justanswer.com/uploads/TA/Tax Expert/2013-8-21_231010_sam.64x64.jpg Sam's Avatar

    Sam

    Accountant

    Satisfied Customers:

    7088
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
  • http://ww2.justanswer.com/uploads/BI/bigduckontax/2013-8-12_222058_1.64x64.jpg bigduckontax's Avatar

    bigduckontax

    Accountant

    Satisfied Customers:

    2333
    FCCA FCMA CGMA ACIS
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg TaxRobin's Avatar

    TaxRobin

    Tax Consultant

    Satisfied Customers:

    524
    International tax
  • /img/opt/shirt.png taxadvisor.uk's Avatar

    taxadvisor.uk

    Chartered Certified Accountant

    Satisfied Customers:

    2845
    FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
  • http://ww2.justanswer.com/uploads/MS/MsAM/2012-6-9_16426_anna.64x64.jpeg Anna's Avatar

    Anna

    Teacher, writer, biologist

    Satisfied Customers:

    270
    Great research skills, variety of work experiences, teaching experience.
  • http://ww2.justanswer.com/uploads/PD/pdheslin/2012-6-6_232056_pambig.64x64.jpg pdheslin's Avatar

    pdheslin

    Consultant

    Satisfied Customers:

    51
    20+ years of internet site creation and search engine optimization. Dozens of search tools at my disposal.