Buying and moving into Parents house options

by **type2jim** on Fri Aug 20, 2010 1:04 pm

We are selling our house and moving to a new area where my wifes parents live, initially we will be moving in with them while our house sells but they have expressed an interest in selling us the house, moving out and downsizing. The house is currently valued ~300 - 325k and although we could get a mortgage for that amount we would prefer not to as her parents has suggested gifting some of the capital as they will not require the full amount for their new property. Both parents are in their 60's and in good health with a reasonable retiremnt income from pensions. Total value of their estate does not exceed £650k and there are two other daughters to which any estate would be split evenly in the event of their passing in the distant future. We would then plan to extend the property increasing it's value.
What we wish to know is the best method minimising CGT/IHT/Stamp duty for the following scenarios and what we may be liable for in the future.

1. We purchase a stake in the property for 225K ie 75% with them retaining the remainder. I believe we would only pay Stamp duty of 1%. The remainder could possibly be purchased in the future or inherited?
2. We purchase the property at below market rate, e.g 250K
3. We purchase the property at market rate and they gift us 50K (this seems to incur the most costs)
4. We buy the new house (~200k) that they move into, we move into their house. We both pay each other rent of a similar value.

They are concerned any divestment of assests may be an issue with residential care costs in the future, is this true? If there any better ways do do this I would appreciate the advice.

by **Incredulum** on Fri Aug 20, 2010 1:26 pm

type2jim wrote:1. We purchase a stake in the property for 225K ie 75% with them retaining the remainder. I believe we would only pay Stamp duty of 1%. The remainder could possibly be purchased in the future or inherited?

If purchased at a later date, there will be CGT to pay by parents on any gain. If inherited, obviously no tax (if below 650k estate), BUT that means you cannot move house again until both parents are dead.

2. We purchase the property at below market rate, e.g 250K

Best idea. Remember SDLT will be payable.

3. We purchase the property at market rate and they gift us 50K (this seems to incur the most costs)

Indeed.

4. We buy the new house (~200k) that they move into, we move into their house. We both pay each other rent of a similar value.

Very bad idea as if either of you has to move house then CGT will be payable.

They are concerned any divestment of assests may be an issue with residential care costs in the future, is this true?

Can be true.

by **type2jim** on Fri Aug 20, 2010 2:12 pm

Thanks for the prompt reply, It would seem options 1 or 2 are worthy of further consideration.

For option 1, if we bought our share now and in a few years time the remaining amount was gifted to us what woudl be the implication regarding the inital stamp duty CGT and IHT.

For Option 2, for buying a house at below the market value (250k) are you liable for paying stamp duty at 1% or 3% and do you pay stamp duty on the amount you paid or the house's market value (300k). Would the difference between the two amounts be counted as PET and all associated IHT implications for 7 years.

by **Incredulum** on Fri Aug 20, 2010 2:23 pm

Option 1. In a few years time, then the gift is subject to CGT. Even if the value of the house does not rise between now and then some of the gain to date will become taxable. Nasty that. And yes, it would be a PET.

Option 2. SDLT is paid on consideration, not value. Yes, the difference would be a PET - but if their estate is below 650k then it's not worth worrying about anyway. And a PET is exactly that - there's nothing to lose by giving things away early.