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Where Taxpayers and Advisers Meet

Purchasing house from my parents for under market value

Rexon
Posts:3
Joined:Mon Mar 13, 2017 4:12 pm
Purchasing house from my parents for under market value

Postby Rexon » Thu May 11, 2017 5:16 pm

Hi

I hope you all well. I need some advice !

My parents have bought a property in 2003 for £200k on interest only mortgage. The same loan amount is still outstanding but the property is now worth around £350k. They had a mortgage on 15years term (due to the age) and its now about to end, hence they would like to sell the house to me for £200k and the remaining equity £150k will be given to me as a gift.

My understanding is I need to pay stamp duty on the purchase price (£200k) and the remaining £150k gift will be subject to IHT (if anything happened to my parents in the next 7 years period). However some people say that I have to pay stamp duty on property value, which is around £350k.

any advice?

Thanks

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Purchasing house from my parents for under market value

Postby maths » Tue May 16, 2017 8:30 pm

SDLT is payable on consideration.

If you therefore purchase the property for 200K then SDLT is payable on this amount.

Were you to purchase the property for 150k AND take over the liability for the mortgage of 200k SDLT would be payable on 350k.

Rexon
Posts:3
Joined:Mon Mar 13, 2017 4:12 pm

Re: Purchasing house from my parents for under market value

Postby Rexon » Mon May 22, 2017 12:38 pm

Thanks Maths

I am purchasing the property from my parents for £200k (Total outstanding mortgage loan my parents have now)

I have read the "SDLT payable on consideration" on HMRC website, buts its more confusing.

Can you or anyone explain what its really mean in simple term..may be with simple examples?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Purchasing house from my parents for under market value

Postby maths » Mon May 22, 2017 1:12 pm

House worth 350k.

Mortgage 200k.

You agree with parents to purchase property for 200k ie you pay them 200k. The "consideration" you have paid is 200k.
SDLT is therefore due on 200k.

The fact the house is worth 350k is irrelevant (for SDLT purposes).

You pay parents 200k and they then pay off their mortgage.

Rexon
Posts:3
Joined:Mon Mar 13, 2017 4:12 pm

Re: Purchasing house from my parents for under market value

Postby Rexon » Mon May 22, 2017 3:22 pm

Thanks Maths for sharing the knowledge

Really appreciate it.

anna10
Posts:1
Joined:Mon Apr 09, 2018 2:02 pm

Re: Purchasing house from my parents for under market value

Postby anna10 » Mon Apr 09, 2018 2:09 pm

Hi,

Are you able to advise for the following situation which is slightly different?

My parent has a house worth 300k and I would like to buy it for 200k. I would not need to get a mortgage, I would buy it outright. It currently doesnt have a mortgage on it either.
Can you advise if the same applies - I would only need to pay stamp duty on 200k and my parent does not need to gift me the remaining 100k?

Would there be anything else to take into consideration for this?

Thank you

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Purchasing house from my parents for under market value

Postby maths » Mon Apr 09, 2018 4:00 pm

If you buy for 200k the house from your parents (on which they do not have a mortgage) then SDLT is in principle payable on 200k. This applies whether you have cash of 200k or 100k cash and you take out a 100k mortgage.

However, following the Budget last November no SDLT is payable up to 300k for a first time buyer who intends to occupy the property purchased.

If the house is worth 300k but you buy for 200k then parents for IHT have made a gift of 100k.No CGT should arise for parents if they have always lived in the property.


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