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bigduckontax, Accountant
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I need to sort out buying an apartment parents, they

Customer Question

I need to sort out buying an apartment for my parents, they have not sold their property as yet and are unlikely to do so before this property is purchased. I need the most efficient method of purchasing this property with the least tax impact for all parties.
Do I:
Purchase it in my name (definitely before 6th April) as this can not be described as my primary residence so therefore I suspect I maybe dealt with as buy-to-let, although that is not the case. I then subsequently transfer the title to the property to my parent when their property is sold (repaying the loan). Hopefully no CGT for anyone.
Can I lend the money to my parents and they purchase the property before selling their property, but I do not want to make them liable for CGT on the house they have lived in for 30 years (gaining 130k in value, ouch).
Is there another option
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. If you use the first option the tax consequences are two fold. Firstly the disposal by gift to your parents will be a disposal for CGT purposes and attract Capital Gains Tax (CGT) on any gain made from the gross acquisition price and the current market value at transfer. As you surmise if this is done relatively quickly there will be none or minimal gain and you have your Annual Exempt Amount (AEA) of 11.1K to offset this. Any CGT would be at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of gifting. The gift to your parents creates a Potentially Exempt Transfer (PET) in your Inheritance Tax (IHT) position. PETs run off over seven years at a taper and in the event of your demise within this period are added beck to your estate for IHT purposes. PETs are the first to suffer IHT and in the event of your estate being insufficient to meet the tax on the PET it cascades down to the beneficiary for immediate payment. Loans are outside the scope of UK taxation unless interest is involved. If you loan your parents the cash to buy the new property then, as you surmise, for a limited period there will be a latent liability to CGT on the old residence which will be far less than the 30 year gain of 130K. However for this tax the last 18 months do not count as even HMRC recognize that you cannot dispose of landed property as easily as a second hand car. For that period they are deemed to be in occupation even if this is not the case so there is some slack here which may enable Private Residence Relief to be extended. In any event they have two years to elect to which property they wish their PRR to be applied and so could elect for the old residence if the 18 month rule will not cover them. If they live in the new apartment for say 2 years before the old is sold then the total ownership time would be 32 years. The residence period would be 30 years so only 30 / 32 [93.75] less 100 ie 6.25% of the gain is exposed say GBP 8480, well below the 11.1K AEA so nil tax would be due anyway. I do hope that I have solved your conundrum for you. The latter seems the better option all round.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3369
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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