Buying a flat for mother whilst receiving her house as a gift

[Scantech]

We are looking to buy a retirement warden controlled apartment for mother at £135k and in return she wants to sign over her existing house £280k value to us. We would then rent it out to gain an income to help cover the cost. We will be raising a mortgage, ideally on our existing house but don't know the best, most tax efficient way of doing this. We dont know whether we should speak to a solicitor or a specialist on tax etc.

We also need to decide whether to use savings or put the full amount on a mortgage for tax benefits.

We are also concerned about inheritance tax and if we purchase mum's house and she uses the money to purchase the flat paying stamp duty twice.

[cranleys]

YOu have a great deal of general information - have you looked at a copy of my book?

You should obtain as high a mortgage as possible and fund the remainder from yout home mortgage.

IHT is an issue - there are ways to avoid this which may include purchasing via a Limited company.

Always available to assist.

Colin Davison - Cranleys Chartered Accountants
colin.davison@cranleys.co.uk T 01252 852220, M 07766-714000
Editor/ Writer of Property Tax Secrets, Inheritance Tax Secrets

Our aim - "create value, achieve success"

There is nothing to substitute proper professional advice because each taxpayer's personal and business circumstances differ.

[bob.fraser@towrylaw.]

Why doesn't you mother:
a. Sell her existing home. No CGT as PPR.
b. Use the proceeds to bu the sheltered accommodation. No mortgage and so no worries and no interest payments.
c. If she wants, gift you the balance (£145,000). This would then be a potentially exempt transfer which would fall outside her estate after 7 years. Alternatively, if she needs the money to provide her with an income, she could consider a discounted gift trust arrangement which would provide a tax efficient income, whilst providing both immediate and residual IHT savings.
d. Her new home is within the nil rate band for IHT, so assuming that her residual assets are less than £275,000, there may not be an IHT problem in the future.

[Scantech]

Thanks for the detailed reply, re selling, she doesnt want to sell the house but leave it some how to her daughter to rent out for an income, initally to help towards cost but in future to provide an income. The property is in a high rental income area with the neighbours semi attracting 1k a month. Mother doesnt need an income from the move etc

[bob.fraser@towrylaw.]

My concern with your mother's plans is that in essence she is giving you £280,000 from which you are effectively giving her back £135,000. Although you will be raising the cash by a mortgage on your own home, rather than by selling your mother's, I feel that this will be seen as an "associated operation". Consequently I am of the opinion that your mother may be liable for the new pre-owned assets tax.
Maybe one of the other contributors to this forum has another view on this?