Capital Gains / Income Tax / Landlord / Non-Profit

[matt@mpe1.freeserve.]

Hi,

I am currently in a situation where my father and myself are looking to purchase an apartment. The idea is that my father will borrow money, which is tied up in his current house at a very keen rate and purchase the apartment (£100,000). I will then rent it from him at £500 per month and at any time I can leave, he will sell the property and I will get any increase in price. He is not looking to make anything from this deal - it is simply for me. I understand that he will have to pay income tax on the £500 per month; this seems unfair, as he is making nothing. Then when it comes to be sold, I / he will have to pay capital gains on the property. This makes the deal much less lucrative for him and me.

My question is this:
1. If my name is on the deeds also, will I be able to sell it and avoid Capital Gains?
2. If he sets up a company, will he avoid the income tax?

Any help is much appreciated!

[Ian McTernan CTA]

To answer the questions posed- you will not incur CGT, but your father's half would.

2. yes, avoids income tax- corporation tax will be payable instead.

A better solution would be for your father to mortgage his own property and lend you the money to buy the apartment, so it is solely in your own name. You would then qualify for PPR relief on sale. You should then arrange to pay the loan interest direct to the bank involved, rather than through your father. If paid through your father the money would be treated as income.

This of course ignores the potential IHT position and your father should review his estate at this time and Will to see whether he would be better suited to gifting you the money outright.

Advice from a solitor to draw up the necessary documents should be sought.

Ian McTernan CTA
Chartered Tax Adviser
McTernan Associates Ltd
ian@imcternan.com