Selling property for one pound

[havoc78]

Hello,

I own a property (a flat) and I also have a mortgage secured on it. I would like to purchase another property and move the mortgage over to the new property. However, my mortgage provider insists on the first property being sold as a condition for transferring the mortgage to the new property (while I would like to retain ownership of the first property by simply paying the current balance off and "starting the mortgage again" on the new property). Getting a new mortgage would be inconvenient as my current conditions are very favourable.

The bank said they don't care who the property is sold to or for how much, so I thought I would sell it to my mother for one pound. Shortly afterwards, my mother would gift the property back to me.

Are there any tax pitfalls in this transaction? I assume I will not have to pay Stamp Duty as the purchase price is just one pound?

Thank you

[havoc78]

I forgot to add - both my mother and I are in good health and expect to survive for more than 7 years.

[mullet]

I am not an expert in stamp duty, but as far as I know it is based on consideration passing. So if you genuinely sell the flat for £1 and without any debt such as a mortgage passing to the new owner, then there won't be any stamp duty.

Is this a BTL/investment flat? As in do you live there as your residence? If not then selling to your mother would expose you to CGT as the disposal would be deemed to take place at market value rather than £1.

One final point - selling something to your mother for £1 and then getting it back soon afterwards isn't very imaginative and is open to attack by HMRC if they think that they are losing out in any way.

[havoc78]

Thanks for the quick reply.

Yes, the flat is my main residence, so there shouldn't be any CGT payable.

What do you mean by HMRC attack? The only reason I would do this is to retain ownership of a property I already own when I move the mortgage to another one (because my bank insists on a sale taking place). Should I call HMRC and clear it with them beforehand? What kind of objections may they have to this transaction?

[section 44]

Tax aside, this sounds odd and it may be worth confirming this again with the bank. To transfer the legal interest in the first property to your mother, the bank will have to release their charge on the property and at that point there would be proceeds of sale of just £1. The bank would be exposed to unnecessary risk and I would clarify with them that this is something that they are prepared to do. They may not appreciate the technicalities of what is proposed until the paperwork needs to be finalised and somebody at the bank is asked to release the charge over the property without any funds being available. Whilst I am not a banker, I would be surprised if, at a time when the banks' approach to risk is under such close scrutiny, a banker would be prepared to do what is proposed.

Another tax consideration to consider - IHT. The "gift" by your mother would be a potentially exempt transfer and, should she die within 7 years, would eat into her nil rate band for IHT purposes.

[Generix]

Tax aside, this sounds odd and it may be worth confirming this again with the bank. To transfer the legal interest in the first property to your mother, the bank will have to release their charge on the property and at that point there would be proceeds of sale of just £1. The bank would be exposed to unnecessary risk and I would clarify with them that this is something that they are prepared to do. They may not appreciate the technicalities of what is proposed until the paperwork needs to be finalised and somebody at the bank is asked to release the charge over the property without any funds being available. Whilst I am not a banker, I would be surprised if, at a time when the banks' approach to risk is under such close scrutiny, a banker would be prepared to do what is proposed.

I read the thread and had this exact same thought pattern.