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Sam, Accountant
Category: Tax
Satisfied Customers: 14195
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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My mother needs to move into a retirement property . She owns

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My mother needs to move into a retirement property . She owns a small house worth £ 150 K but it might not sell that quickly as it needs work. So, I was going to buy the retirement flat for her with cash that I have , value = £ 120 K . This means she wont have the long wait or the issues associated with being in a chain . Then, when she is settled in the new flat she would sell her little house and give me back the £ 120 K and keep the other £ 30 K for service charges, etc.
Seems that this is how it should be but I fear the tax man will want something along the way.
Thanks for your question - I am Sam and I am one of the UK tax experts.
You have nothing to fear from the taxman - just make sure that you prepare a written note detailing your loan to Mum for the purchase of the retirement flat - and that this will be paid back on sale of her property.
If there is to be any interest paid to you (or to cover any work you may do on the property prior to sale, then include this into the written loan agreement too.
Then when the loan is repaid - you have evidence of where this money came from an too.
The only element the tax man will be at all interested in, is IF your mother was to pay you any award of interest against the loan - this HMRC would need to know about as a taxable income - but the loan its lending and repayment gives rise to no tax position at all.
If there is no interest paid to you - then HMRC do not even need to be alerted to this arrangement.
Also you may wish to ask MUM to put a copy of the loan agreement with her will - just so that all papers are in order and your loan would take first priority in calculating the correct value of the estate - prior to onside ration of Inheritance tax or any distribution of the estate- and you would want to place a copy with your will too - for collection of the loan to add into for consideration of Inheritance tax prior to distribution
Let me know if I can be of any further assistance
Customer: replied 2 years ago.
Thank you , very helpful . I am not familiar with the term onside ration though ? Is it better to keep the retirement flat in my name ? And also if mum dies In a few years will I be subject inheritance tax ( since It may appear that I hace dodged it ? )
I do apologise - that should say
"prior to consideration!! of Inheritance tax or any distribution of the estate
No there will be no Inheritance tax as this is a loan not a gift, but clearly there will be a small period of time where it would appear Mum will have 2 x properties.
Just Make sure her current home is sold within 18 months of moving out (to avoid capital gains) and s far as the Inheritance tax is concerned, until such time Property 1 is sold, she still owes you £120K so this will bring her estates value down to the correct level - and as long as this correct level is less than £325,000 then there is no Inheritance tax)
I would not keep the retirement flat in your name - as you will have a capital gain position arising when its sold - as this property will not have been your main residence - so ANY gain between purchase and sale will be considered for capital gains (although the first £11,100 will be exempt as this the annual exemption allowance) but this is additional hassle you probably could do without and the loan arrangement makes it very clear to you, Mum and HMRC (if they had any reason to ask) and for either of the properties and subsequent sales - a very simple position.
Just make sure her current home is sold within 18 months of moving out to remain capital gain free.
let me know if I can assist any further - but it wouldbe very much appreciated, if you would rate the level of service (or click accept) so I am credited for my time
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