Selling property to daughter

[buddyspire]

Thought I would ask the very knowledgeable PH experts.
I have inherited a modest semi house but with lots of garages and land from my parents, the garages were also my Dads car restoration business with correct planning use. Due to the general site condition and the relative size of house to the size of the plot it wasn’t the easiest to sell.

I eventually accepted an offer but the buyers needed to sell and this has been going on for months.

Now my daughter and husband want to buy the house to live in and to run his business from. Getting a mortgage for the full amount will be difficult due to the business use and he’s only just started up his business.

So my idea is to get paid a modest lump sum form the sale of their current house and then get paid the rest in monthly payments expecting this to take from 10-18 years. The benefits are I get a regular monthly sum and they don’t have to pay interest. I'm currently working part time and plan on doing this for at least 3-5 years before retiring fully.

Apart from the obvious risk that I’m taking that they never pay me back and the 7 year rule on gifts as the house sale would also be discounted by at least £30k. Are there any tax implications on the money I receive as this is not for rent its payment for the house and it will be their only residence.

[Eric Mc]

You will be liable to Capital Gains Tax based on the agreed sale price of the property.

The fact that they pay you over a period of time is irrelevant. You will pay the CGT based on the date of completion of the sale.

[dave123456]

I’d personally have a proper agreement drawn up and charge some interest.

You may not like the suggestion but if things go belly up between your daughter and husband and he is running his business from it then it will be challenging if you have strayed too far from an arms length deal.

[98elise]

Eric Mc said:

You will be liable to Capital Gains Tax based on the agreed sale price of the property.

The fact that they pay you over a period of time is irrelevant. You will pay the CGT based on the date of completion of the sale.

Is it CGT on agreed sale or market value? He said they will have a discount.

I'm in a similar position where I want to sell a property to my son. I bought it cheap (auction) and want to sell it to him for the same amount, but I've been told I would be liable for CGT on the market value.

I've only just bought it so it could be argued that's the market value, but way below what they normally sell for.

[Panamax]

98elise said:

I've only just bought it so it could be argued that's the market value.

Auction purchase is by definition market value, irrespective of the price paid. Yes, if you were to immediately sell on at a higher price you'd be liable for CGT on your gain.

Unless it's a cheap place you'll be paying two lots of Stamp Duty when you only needed to pay one.

[buddyspire]

Eric Mc said:

You will be liable to Capital Gains Tax based on the agreed sale price of the property.

The fact that they pay you over a period of time is irrelevant. You will pay the CGT based on the date of completion of the sale.

Hi i thought you only paid CGT if it wasn't you main residence, as this will be their only residence then none should be due if/when they sell it. I'm not due to pay any as its an inheritance and its being sold at a lower value than on probate. The idea is to only sell them this house once they had sold theirs.

[TownIdiot]

buddyspire said:

Hi i thought you only paid CGT if it wasn't you main residence, as this will be their only residence then none should be due if/when they sell it. I'm not due to pay any as its an inheritance and its being sold at a lower value than on probate. The idea is to only sell them this house once they had sold theirs.

No CGT in that case.

In effect you are offering her a sale with deferred payment.
The sale goes through at the agreed price with all relevant stamp duty paid.

If you think it's appropriate you can take a charge on the property, which you release when it's paid off.

That way you have security for your loan.

[buddyspire]

dave123456 said:

I’d personally have a proper agreement drawn up and charge some interest.

You may not like the suggestion but if things go belly up between your daughter and husband and he is running his business from it then it will be challenging if you have strayed too far from an arms length deal.

yes it will be on a proper agreement as I have a son also, so need to cover him in the event that my wife and I die before the "loan" is paid. I didn't want to charge interest as a) this would be taxable b) it increases their costs.

[buddyspire]

TownIdiot said:

No CGT in that case.

In effect you are offering her a sale with deferred payment.
The sale goes through at the agreed price with all relevant stamp duty paid.

If you think it's appropriate you can take a charge on the property, which you release when it's paid off.

That way you have security for your loan.

thanks for the advice seeing solicitor this week but he wont advise on any taxes that may be due, but my understanding was none due if a formal agreement to pay back the loan.

[TownIdiot]

buddyspire said:

thanks for the advice seeing solicitor this week but he wont advise on any taxes that may be due, but my understanding was none due if a formal agreement to pay back the loan.

No tax if they aren't paying interest.

Your daughter will pay whatever the stamp duty rate on the purchase price is.

[Panamax]

buddyspire said:

Hi i thought you only paid CGT if it wasn't you main residence, as this will be their only residence then none should be due if/when they sell it.

I suggest you seek paid advice. Various questions arise around when ownership in the house is actually going to transfer. For instance if they are going to pay £100,000 for the house do they really get ownership of the whole thing on Day 1 even though they are supposed to pay £1,000 a month for 100 months? What happens if they stop paying? Are you going to take a charge over the property - in effect granting them a mortgage?

If you were to die after they've paid 6 months at £1,000 a month what happens next? Do they get the house paid off as a gift from your estate or do they keep paying for another 94 months? Will your estate (or they) have sufficient cash to pay the IHT?

I think the bottom line is it would be a good idea to have the whole arrangement carefully understood and legally documented.

[98elise]

Panamax said:

98elise said:

I've only just bought it so it could be argued that's the market value.

Auction purchase is by definition market value, irrespective of the price paid. Yes, if you were to immediately sell on at a higher price you'd be liable for CGT on your gain.

Unless it's a cheap place you'll be paying two lots of Stamp Duty when you only needed to pay one.

It is a cheap place

I bought it at auction for £100k (all in), but they normally sell for £170k -200k. I want to sell it to my son for the same price I paid.

If a surveyor valued it, they would probably put it closer to the £150k mark as it really needs updating. It was with an agent for a while at £170k but didn't sell.

[TownIdiot]

98elise said:

It is a cheap place

I bought it at auction for £100k (all in), but they normally sell for £170k -200k. I want to sell it to my son for the same price I paid.

If a surveyor valued it, they would probably put it closer to the £150k mark as it really needs updating. It was with an agent for a while at £170k but didn't sell.

I can't see it being a problem - you can demonstrate what the market rate is.

How could anyone seriously argue anything different?

[Eric Mc]

buddyspire said:

Hi i thought you only paid CGT if it wasn't you main residence, as this will be their only residence then none should be due if/when they sell it. I'm not due to pay any as its an inheritance and its being sold at a lower value than on probate. The idea is to only sell them this house once they had sold theirs.

YOU pay CGT because the house is not YOUR main residence.
If you sell it for not much more than you paid for it, you pay less CGT or you might pay none at all.

The sale has to be at “arm”s length”. In other words, it must be a bona fide sale with you retaining no rights to the property.

.

Edited by Eric Mc on Tuesday 24th September 17:36

[TownIdiot]

Eric Mc said:

YOU pay CGT because the house is not YOUR main residence
.

Only if there has been a gain.

[Eric Mc]

Of course. The tax is paid on the gain on disposal. No gain, no tax. But it must be a genuine sale.

[Caddyshack]

TownIdiot said:

buddyspire said:

Hi i thought you only paid CGT if it wasn't you main residence, as this will be their only residence then none should be due if/when they sell it. I'm not due to pay any as its an inheritance and its being sold at a lower value than on probate. The idea is to only sell them this house once they had sold theirs.

No CGT in that case.

In effect you are offering her a sale with deferred payment.
The sale goes through at the agreed price with all relevant stamp duty paid.

If you think it's appropriate you can take a charge on the property, which you release when it's paid off.

That way you have security for your loan.

That’s not correct, the current owner may be liable for Cgt if there is a gain from the inherited value to the sale price, it has nothing to do with the buyer.

I suspect that this is easily solved by agreeing that there is the 30k reduced price, that is what the Cgt (if applicable) would be based on as it is hard to argue this isn’t market value.

I would suggest the seller does just that and just takes a charge deed over the property… ineffect the seller just also becomes the mortgage lender.

[TownIdiot]

Caddyshack said:

That’s not correct, the current owner may be liable for Cgt if there is a gain from the inherited value to the sale price, it has nothing to do with the buyer.

I suspect that this is easily solved by agreeing that there is the 30k reduced price, that is what the Cgt (if applicable) would be based on as it is hard to argue this isn’t market value.

I would suggest the seller does just that and just takes a charge deed over the property… ineffect the seller just also becomes the mortgage lender.

Which bit isn't correct?
He's already said he hasn't made a gain.

[98elise]

TownIdiot said:

98elise said:

It is a cheap place

I bought it at auction for £100k (all in), but they normally sell for £170k -200k. I want to sell it to my son for the same price I paid.

If a surveyor valued it, they would probably put it closer to the £150k mark as it really needs updating. It was with an agent for a while at £170k but didn't sell.

I can't see it being a problem - you can demonstrate what the market rate is.

How could anyone seriously argue anything different?

That was my thinking. It was put in an auction with a well known Auctioneer so what it sold for was the market price.

I was discussing it with another landlord and he was of the opinion it was worth more if sold in the traditional way (and I agree) therefore the market value is higher.

I guess I need to speak to a tax specialist.

[TownIdiot]

98elise said:

That was my thinking. It was put in an auction with a well known Auctioneer so what it sold for was the market price.

I was discussing it with another landlord and he was of the opinion it was worth more if sold in the traditional way (and I agree) therefore the market value is higher.

I guess I need to speak to a tax specialist.

Or just do it and argue the toss if they pull you up on it. An auction is a valid way of finding the market value.
(Having the notional tax available if they cut up rough)

It can't be considered reckless.

I'm not a tax specialist by the way. As you can probably tell.