Hi,
Just want some advice for someone I know. The person is a newly qualified teacher in London, not on the best of salaries, but decent enough and will increase over time. Her father is a landlord, but is getting old with very little owing on an investment property owned for 30 years, current lender is Godiva Mortgages - something like £60k is owing on a valuation of something like £700k with a monthly rental of around £2k. What would be the process of getting the property entirely re-registered under the daughter’s name (ie my friend)? Obviously as a BTL, my friend will need to apply for a BTL mortgage etc… Just want some advice from someone who has done it and any tax advice too on how best to go about it. Thanks all!
If a mortgage is involved it is best to use a solicitor firm as the mortgage company will require professional solicitor to act for them so they would incur this cost anyway.
The father would be responsible for capital gains tax at 28% on the gain so given it has been held for 30 years this is likely to be very substantial. Capital gains tax doesn’t apply on death so dependent on how old the father is it may be better to gift the income and then gift property to daughter on his death but his inheritance tax position would need to be taken into account.
Stamp duty doesn’t apply on gifts but if daughter is taking on a 60k mortgage then stamp duty would be payable on this amount. If she has no other property then no stamp duty is due, if she has other property she would pay 3% on mortgage amount.
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Hi Richard,
Many thanks for your response. 28% on a property that was probably bought for a tenth of what it is today, i.e. £70k back in the 90’s. will be substantial - i.e. 28% of £630k gain equates to something like £176k - not a small chunk of change!
Sounds like the best bet is for the father to keep it on. How much is CGT just out of curiosity? She also has an older brother; i know from another friend of mine whos’ mother died a couple of years ago, an only child gets another £100k allowance on top of the standard - but I have no idea on the numbers. If the daughter is added to the mortgage, is that possible or is that still susceptible to stamp duty? Thanks!
You have calculated the cgt (approx)? I assume you meant IHT? There is an exempt amount of £325k plus where there is property and children there is now an additional £175k so effectively first 500k is iht free. This applies to fathers estate, children dont get a separate allowance. If father is married or widower where iht allowance wasn’t used on wifes death then the joint allowance is effectively £1million. Anything over is taxed at 40% and if estate is over £2m they start to lose the property related exempt amount. There are ways of mitigating IHT but father probably should seek advice on this.
If they were to gift it the father would need to live 7 years, otherwise gift would still be in fathers estate and subject to iht so would be paying cgt and iht.
It would be up to mortgage company if they are willing to have a non owner on mortgage but isnt really likely to be a good idea as joint mortgage would reduce fathers debt which is would increase iht liability.
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Hi Richard, thanks. Seems like i got my calculations wrong, thanks for correcting me. I found interesting the sentence: “If they were to gift it the father would need to live 7 years, otherwise gift would still be in fathers estate and subject to iht so would be paying cgt and iht.” - does this mean, if the father was to legally gift it to his daughter, i.e. I guess this needs to go via a Solicitor, then on the 7th year and 1 day it is then IHT and CGT free? I hope I have understood that correctly - if not, feel free to elaborate. The property in seven years will be mortgage free, unencumbered. Thanks.
No. Cgt is payable on transfer based on market value at time of transfer and can’t be reclaimed irrespective of when he dies. I was meaning that doing the gift now has the risk that he would pay the circa 176k cgt now and still potentially be liable to iht of £280k (dependent on other assets) if he died within 7 years so a total of £456k in tax, which is a lot!!
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I gave a flat to my daughter 4 years ago I need to live another 3 for it to be out of any tax. Strongly suggest you consult an accountant/ solicitor
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have a look at.google. taxcafe