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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My Mum purchased a house in 2012 (using a regulated BTL mortgage)

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My Mum purchased a house in 2012 (using a regulated BTL mortgage) for £250,000 – I have lived in it since then to date.
I am now buying it off my Mum for a below market value price of £265k (she is gifting the equity to me which my mortgage Co is happy with) – the valuer for my mortgage Company valued it on the open market at £340,000 however Zoopla values it at £320k - can I use either valuation for HMRC?
I am trying to understand the SDLT for myself on purchase and CGT implications for my Mum on the sale.
I believe certain expenses can be used to reduce the CGT liability – for example, my Mum has invoices totalling c£20k for works to improve the property from various trades – inc recarpetting the house, full internal redecoration, new front driveway etc as it was in a very poor state when she bought it. I also believe that the buying/selling costs can also be offset – does this include things like the mortgage lenders arrangement fee my Mum paid for her BTL mortgage???
Another thought - once we establish the "market value" of the house, can we deduct say 2% which she is saving on estate agents fees as well?
The rent I have been paying for the last 3 years via an AST covers just the mortgage payment so my Mum has not profited at all from owning this property…
Please let me know if there is anything else that can offset the CGT liability and also which value the SDLT is based on.

As far as the valuation of the property when it is gifted to you is concerned, you should have a couple of valuations done by established estate agents and not ones that will provide a valuation to order (ie an unrealistic tax advantaged one) which I'm afraid some agents do. HMRC do refer calculations of gains made on property to the District Valuer.

The improvement costs as opposed to general repair costs can be used against the gain. HMRC may ask to see proof of this expenditure in the form of receipts and invoices. Photographic evidence may help in their absence. The costs of buying and selling may be claimed (legal fees, survey fees, selling agent fees etc). The mortgage arrangement fee can be claimed so long as it was not offset against rental income. You cannot deduct 2% in lieu of estate agent fees I'm afraid.

You cannot claim any rental losses against the gain. The income and capital sides are completely separate. The first £11,000 of the gain will be tax free due to the annual CGT exemption individuals are entitled to.

I assume you are not taking on your mother's mortgage but arranging your own. You should base the SDLT on the purchase price as opposed to the real valuation. When individuals make a gift of property for no consideration, there is no SDLT. It's no different where a property is being sold at under value in the circumstances of your case. There is no SDLT on the gift element, the difference between the real value and the agreed purchase price. Take a look here for information on SDLT.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

Thanks for your prompt reply. Good news regarding the SDLT - The mortgage arrangement fee was not offset for tax purposes so will deduct that - thanks for confirming... Yes I am taking out a mortgage in my own name and using it to repay my Mums mortgage... So to be clear, if I get 2 agents around to give their valuation as long as I don't ask them to be deliberately low (which I wouldn't dream of doing!) that will be accepted instead of the valuation done by my mortgage company???

Are there any other expenses/costs I can use to reduce the gain aside from home improvements and buying/selling costs??? Thanks!

A mortgage company is only interested in there being some leeway between the mortgage and the valuation. Nobody relies on those valautions for CGT purposes.

As the property was never your mother's main home, she won't be entitled to main residence relief or letting relief. I didn't mention stamp duty your mother paid when she bought the property in my earlier post. That can be claimed. Most of the disbursements on the buying and selling completion statements can be claimed. I would also claim any estate agent may charge for a valuation.
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