Buying mothers house for mortgage value then renting back

[kstaplet]

Hi,
i was wondering if anyone could help with this....
My Mum currently has a mortgage for 35,000 (on a property worth £140,000). She has been talking about selling the house to me at the mortgage value and 'gifting' the equity remaining in the house.
I don't live at the house and currently do not own any other property (i am currently renting).
I was wondering if there are any implications if i buy the house on a 35k mortgage and let her continue to live there, but charge her rent equivalent to the new mortgage payments under me (which is significantly less than she is paying now. She is currently 52 by the way and has 11 years left on the mortgage.

Cheers

[al_eebee]

If you charge less than full market rent the pre owned assets tax charge will become relevant

Look at the following for more details:

http://www.hmrc.gov.uk/poa/index.htm

[half scrummy]

The transfer to you will be treated as made at market value for tax purposes, so that a capital gain arises to your mother. However, the gain arising on transfer should be covered by the Private Residence exemption, as long has she has met all the criteria.

Inheritance Tax is an issue, but if the total value of your Mother's estate is less than £300k, including the net value of the house, there is no particular problem to worry about.

You are storing up a Capital Gains tax problem for yourself, unless you start to use your Mother's home. If you do not live in the house at any time during your ownership you will not be able to benefit from Private Residence exemption. Whilst you do not have to live there full time, it is important that you do actually use the property.

The other matter which may cause problems is if your Mother needs to go into local authority care they can still take her house into consideration for means testing.

It would be wise to talk through the issues with a tax adviser to ensure that these issues are approached properly.