Sheepy Posted June 12, 2007 Report Share Posted June 12, 2007 Basically my gran has a house and a flat. The flat is rented out. There are no mortgages. She wants to sell the flat and buy another one. The intention is that I would live in this new flat and rent a room out to a friend whilst I try and get more properties in the future. Question is, how much is it likely to cost to sell the flat (it has been rented out for years and years) in capital gains? What other problems should be looked out for? Cheers Link to comment Share on other sites More sharing options...
plym77 Posted June 12, 2007 Report Share Posted June 12, 2007 Hi Sheepy I am the 'resident property tax expert' here. How much it will cost in Capital Gains Tax will depend on the figures - can you provide anymore information? - purchase date (month ideally, definately year) - purchase cost - expected sale price and time frame - costs of improvements - costs of purchase/sale - did your gran ever live in the property Additionally - more details about the new property would be good too as it is always best to try and get the tax bit right from the start! - who's name will the flat be in? - is there a mortgage? who will pay it? - if the property is in your gran's name, will you be paying market rent? nominal rent? no rent? - if you are not buying from the outset, are you going to buy from your gran at some point? Will she be gifting an element to you? .... that should be enough for now... Regards Sherena Link to comment Share on other sites More sharing options...
Sheepy Posted June 12, 2007 Author Report Share Posted June 12, 2007 Thanks I have put what I know below: - purchase date (month ideally, definately year) Been in the family for years, great grandad lived in it, it was rented out once he died - purchase cost - around £30k I believe - expected sale price and time frame - not 100% sure at the moment but within months hopefully - costs of improvements - none - it has been recently renovated - costs of purchase/sale - new place looking at do you mean? if so its £150k - did your gran ever live in the property - her dad did Additionally - more details about the new property would be good too as it is always best to try and get the tax bit right from the start! - who's name will the flat be in? more than likely my grans but is there a way to have it in mine? - is there a mortgage? who will pay it? no mortgage at all - if the property is in your gran's name, will you be paying market rent? nominal rent? no rent? whats the difference? - if you are not buying from the outset, are you going to buy from your gran at some point? Will she be gifting an element to you? Whats the best way? I am in final year of doing a law degree and have avoided as many aspects of civil law and rather wishing I had done some propery stuff now!! Link to comment Share on other sites More sharing options...
plym77 Posted June 13, 2007 Report Share Posted June 13, 2007 Hi Sheepy Unfortunately you haven't given me enough information to be able to give you a complete answer. If the property was owned by your gran (presumably by inheritance?) prior to March 1982 then you will need a March 1982 Value, if it was owned post-82 then when your gran inherited the property there was have been a probate value for the house. It is highly possible therefore that given the huge rise in the value of property that there would be a Capital Gain and therefore tax liability. I think you do need some specific advice on this, there are ways to reduce/defer a CGT liability but this is specific advice and I can't really post it here as I am only able to provide caveated general advice on this forum. With regard to the new property. A few ways to do this - she could gift the property to you outright and providing she lives for 7 years post gift (sorry to be depressing!) then it would fall out of her Estate. If she dies within 7 years and has an Estate worth over the Nil Rate Band (currently £300k) then there could be an Inheritance tax charge on death. If your gran does not wish to give the property to you outright then she could consider using a Trust with you as the beneficiary - which also has some advantages. In all honesty I think that your gran needs to let a tax adviser review this for her and advise her on the most beneficial way forward. Yes there would be a professional fee involved but in all honesty this would be far outweighed by the tax saving that could be made. This is unfortunately too specific a situation to provide you with general advice - but you and your gran would really benefit from some professional tax advice on this. There are two issues here, Capital Gains Tax, and Inheritance Tax. If you would like me to take a look at this for you, please do email me on sherena.glanton@horwath.co.uk to discuss this further. For your information I am a Chartered Tax Adviser and I have a particular bias in dealing with all matters property tax - including how to deal with this for Capital Taxes purposes. I would be very happy to talk this through with you further, should you wish. Kind regards Sherena Glanton CTA Link to comment Share on other sites More sharing options...
landlordsdirect Posted June 15, 2007 Report Share Posted June 15, 2007 Hi Sheepy, Why are you thinking of selling the flat? Have your gran considered remortgaging the flat? most lenders will lend to the age of 85! If the flats rent is meets critiaria you are likely to get 85% of its valve out, you will have no capital gains or stamp duty to pay. Use the remortgage towards your new place and you will already be on your way to building a porfolio. If you have trouble finding a lender email me. Regards G Link to comment Share on other sites More sharing options...
plym77 Posted June 15, 2007 Report Share Posted June 15, 2007 good point to an extent Landlordsdirect, however, it would appear that granny wants to make some form of gift to Sheepy. If she takes a mortgage out she could of course gift the cash to sheepy and that would be fine - no CGT/SDLT issues on a cash gift - but how many people really want to take mortgages at her age? If she is OK with that then fine - however - the rent would be hers, not his - taxable on her, she would own that property and therefore it would not form part of Sheepy's portfolio. If she subsequently wanted to gift the property to Sheepy afterall also handing over the mortgage, then the gift would attract a CGT charge, but also there could be a SDLT charge if the mortgage was over the SDLT threshold as a mortgage is 'deemed consideration'. This would then leave them in a worse position than an outright gift. PLUS there was an interest charge to be paid on the mortgage which really didn't have to be. She could just keep the property herself as a BTL and gift Sheepy the cash - this would be fine - but would depend on whether she really wanted to keep the property. As long as the rent covered the mortgage interest she may be fine with this. This would work as after 7 years the cash gift to Sheepy would fall out of her estate and on death she will probably still have the loan which would reduce her estate value for Inheritance Tax purposes. Sheepy could not borrow against the property himself as he would not be the owner - therefore if he needs cash to build his own portfolio then I assume that further gifts would have to be made by granny. In order for Sheepy to get PPR relief on a property he must live in a property he owns - he would not own the current property so living in it would be pointless (however - see below*) for CGT purposes. Additionally, granny would not have got the property out of her estate, albeit that the gift of cash to her grandson/mortgage situation would be taken into account in her Estate/ left her estate etc. *This said, granny could consider putting in place a trust into which she puts the property - if the beneficiary lives in a property held by the Trust then PPR Relief is availabl (providing the gain wasn't heldover going into trust - you unfortunately cant have both anymore!) Sounds like the property is to be sold in order to allow Sheepy to have funds to start building a portfolio - I just cant see that he would want his granny (particularly with rising interest rates) to have the worry of a mortgage at her age - Sheepy is the one wanting to build a portfolio and I expect that he is therefore the one who he would want to be responsible for the financial commitment. There is of course the possibility of Equity Release - however whether this is attractive will depend on a number of issues, including her age. This is too complicated a situation to just say 'gift it' or 'mortgage it' - too much to consider - Sheepy's gran needs professional tax advice on this subject. Sherena Link to comment Share on other sites More sharing options...
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