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bigduckontax, Accountant
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My parents wish to sell their buy to let property, I would

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My parents wish to sell their buy to let property, I would like to buy it. What is the most tax efficient way of approaching this? Could they transfer the asset to me, I take out a mortgage and then gift them back the cash?
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. However they dispose of the buy to let property any gain made will be subject to Capital Gains Tax (CGT). It does not matter which way they get rid of it, save donating it to a charity, CGT still kicks in. The gain will be taxed at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of disposal. Unfortunately buy to lets are not entitled to Entrepreneurs' Relief which limits CGT to a flat rate 10% see HMRC CG63980 viz: 'In 1995 E purchased a buy-to-let property for £100,000 that is let out on an assured short-hold tenancy basis. He sells this property in October 2008 for £250,000. The gain is £150,000. This gain is not eligible for Entrepreneurs’ Relief as it does not constitute a material disposal of business assets. For Entrepreneurs’ Relief purposes a ‘business’ has to be a ‘trade, profession or vocation’. The straightforward letting of property is not a trade.' Gifts create a Potentially Exempt Transfer (PET) in the Inheritance Tax (IHT) affairs of the donor. PETs run off at a taper over seven years and in the event of a decease within this period are added back to the donor's estate. IHT kicks in at 325K. PETs are the first to suffer the tax If the estate is insufficient to meet the tax the liability cascades down to the beneficiary for immediate settlement. Parents can utilise the unused portion of a deceased person's unused 325K making a possible 650K free of tax a possibility. I regret to have to tell you that you have fallen foul of Benjamin Franklin's dictum that in life there are but two certainties, death and taxes. There really is no way of avoiding the CGT on the disposal. I am so sorry to have to rain on your parade.
Customer: replied 9 months ago.
Thanks Keith, I thought as much. Could you clarify whether i would be subject to stamp duty if they transferred the house to me and whether it is permitted for me to take out a mortgage once the property is in my name and then gift the cash from the mortgage to my parents?
Expert:  bigduckontax replied 9 months ago.
Before I can advise on stamp duty I need to know where in the UK the property is located. This tax is devolved to Scotland and is now the Land and Buildings Transfer Tax. You can certainly take a mortgage out if you can obtain one. The interest on such a mortgage would be allowable against rental income at the basic rate of tax only. This restriction is coming in 2017 - 2020. A gift to your parents would create a PET in your IHT affairs. You may have read in the media that buy to let landlords are fleeing the business in their droves.
Customer: replied 9 months ago.
The house is in Nottingham
Expert:  bigduckontax replied 9 months ago.
Stamp duty is payable on the consideration if it exceeds 125K. According to the Gov UK web site the buyer pays the Stamp Duty Land Tax when: 'You pay the tax when you:buy a freehold propertybuy a new or existing leaseholdbuy a property through a shared ownership schemeare transferred land or property in exchange for payment, eg you take on a mortgage or buy a share in a house'Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 9 months ago.
Thank you for your support. Just one slight amendment, the Scottish equivalent is a Transaction tax, not a Transfer tax. Doesn't alter the price of cheese as my old boss was wont to say.

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