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Hi, my name is ***** ***** I am a UK Chartered Tax Advisor. Please can you advise who is liable to repay the mortgage: is it just you currently or you and your parents? Secondly please can you let me know how much of the mortgage is outstanding?
Thank you. For SDLT purposes you as the buyer are subject to SDLT on the amount of 'chargeable consideration'. In the case of a gift with no mortgage the chargeable consideration is zero, but where there is a mortgage the assumption of liability for existing debt is the chargeable consideration for SDLT purposes.
As you already own 50% of the property the maximum that the chargeable consideration can be is £69,000 i.e. 50%. This should fall within the SDLT nil rate band of £125,000 so no SDLT would be payable.
You need to watch out for CGT though. As your parents are gifting a property they are deemed to be selling their half of the property to you at the market value rather than any amount you pay for it. The gain after the deduction of annual CGT exemptions may be subject to CGT at up to 28%.
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Kind regards, Peter
Yes, if the house was purchased at £565,000 and is currently valued at the same then no CGT will be applicable as there is no gain on the transaction.
If you pay them e.g. £140,000 for their share of the property, the gift element would be £142,500 (£565,000/2 - £140,000). This is a potentially exempt transfer which would fall within their inheritance tax estate if they were to die within 7 years of the date of the transfer.
For your wife assuming 50% of the debt on the property (assuming you will hold the property 50:50) the chargeable consideration for her as buyer will be £69,000 i.e. within the nil rate band. I assume this will be her only property and not a 2nd home?
CGT, SDLT and IHT are the only taxes in question directly related to this transaction.
No, for IHT purposes the amount of the gift is the value transferred i.e. £565,000/2 less any amount your wife pays for the gift.
For IHT purposes the gift will be wholly outside your parent's estate after 7 years. From the third year, taper relief applies so that not all of the gift is subject to inheritance tax in accordance with the length of time from the date the gift is made.
For the first 3 years 100% of the value of the gift is within their estate.
The rates of taper relief are attached.
Ok so £142,500 would come off their joint IHT free allowance of £750,000?
Yes that's correct
Although two nil rate band are £650,000 (£325,000 x 2)