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Looking For Your Advice & Opinions Please! (Inheritance Tax/gifting property)


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Hi everyone, 

 

I'd be keen to hear your opinions on the following scenario and how best to achieve what we're aiming for (sorry if I waffle on!)..

 

My situation: I have been investing in property for about 3 years and have a small portfolio of 5 single lets. I plan to refinance on these houses and buy more properties in the coming years, however as they're all in their initial mortgage terms at the moment, I won't be able to do this until 2015/16 (without facing high redemption fees!) which is where my Dad comes in....

 

My Dads situation: My Dad's house is mortgage free and worth around £200k. He has lived with his partner for the past 3 years and during this time he has rented his property out. My Dad is aged 69 and is retired. He is at a stage in his life where he is thinking about his assets and how best to pass them on to me now as opposed to when he passes away. 

 

What we want to achieve: In an ideal world, my Dad would like to give me his house now but continue to receive the rent that the property receives. I would then take out a mortgage on the property and be solely responsible for it (unless there are benefits to my Dad being on the mortgage??). I'd use the released equity (£80k ish) to purchase two properties either solely in my name or with my dad if there is a benefit to this.

 

Issues: Our concerns mainly relate to how to gift the property to me cost effectively. I don't think inheritance tax will come into play as it is under the £325k threshold but will the fact my Dad will continue to receive the rental money from the property have implications? He is happy for me to take over as landlady and remove himself from it completely but I guess that then throws up the issue of how I give him £800 per month and how that looks in the eyes of the tax man? Another option is to add me to the deeds as a joint owner but as a beneficial joint tenancy, would I be right in thinking my Dad would need to be on any mortgage I take out on the property? If we were to do it as tenants in common with a 50/50 share, would I only be able to get a mortgage based on half of the houses value? 

 

Any advice would be much appreciated! I know we should probably speak to an advisor but I thought I'd try and get some opinions first. 

 

Thank you in advance!  :)

 

Hayley

 

 

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Hi Hayley

 

An interesting position for you both here and it is good to see some thoughts going into inheritance plans etc. First of all I would say DO definitely seek professional advice here as tax planning can be quite tricky to navigate at the best of times. Garry Streeter at Beauwater (www.beauwater.com) writes a lot about this particular subject on another property forum and he among others may be worth a chat with (do speak to more than one anyway I would suggest).

 

One thought I have given this situation is that if your father gifts you his house then that may trigger a capital gains tax scenario (and a possible stamp duty transfer?) depending on the amounts involved and how it is done. Equally, gifting the property but retaining a beneficial interest (i.e. the rental income) could pose a problem or two under certain situations. Finally, your father is not that old and should he put another 10-20 'miles' on the age clock, the property could potentially double or even quadruple in value, which could put him over the inheritance tax threshold depending what it is at that time...sorry to be so morbid.

 

Another idea could be for your father to borrow against the house in his own name either via a BTL mortgage (some lenders will lend at his age) or via a Lifetime Mortgage and then he could gift you the loan proceeds money raised. This gift would become a tax exempt transfer after 7 years taking it out of the inheritance tax equation at the same time and there would be no SDLT to pay either. Equally, he could offset any interest charge against his rental income to reduce his tax burden. Of course you would have to figure out how to manage the loan repayments but hey I am no tax planner, so that one is for them to figure out!

 

I just wanted to sow some seeds of thought into your own thinking but as I usually say with these matters, it is worth spending a couple of hundred pounds to get proper, professional advice that could save you thousands in tax as a result.

Richard W J Brown a.k.a. The Property Voice

Property Investment Strategist

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Hi Richard, 

 

Thanks for taking the time to reply, much appreciated! 

 

You have raised some good points regarding potential capital gains tax/SDLT which I had not thought of, so I'll definitely look into that in more detail, Good point about rising price of the house and possible changes in the inheritance tax threshold, my Dads side of the family tend to live until about 90 so he probably will have about another 20 'miles' on the clock :) so that is worth considering.  I'll look up Garry Streeter as you recommend, thanks. 

 

The option of my dad potentially taking out the mortgage does sound like it has its benefits from a tax point of view! My only concern in doing this was due to his age and being retired I thought the BTL mortgage choices may be slim (and probably have high rates) but it's certainly worth exploring as another option. 

 

I'll make sure we pay for some professional advice in the coming weeks but this gives me a good foundation so we don't go into the meeting completely clueless :)

 

Thanks,

 

Hayley

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