Tax (possibly POAT) or Income from second property

by **rockethas** on Tue Jul 26, 2011 8:28 pm

Hi There,

Could I please ask where I stand on the following.

My mother is in need of more support and is therefore going to move closer to us. Her current property is only worth £100K and we need to spend at least £200K to purchase one near ourselves, the difference to be made up by a mortgage in our my name.

Would we be better buying the property outright and letting her live there whilst paying a nominal rent, using the funds from the £100k sale of her current house? To offset income tax on this rent, could we use the tax free gift allowance of £3000 per year?

or Would be better both putting in £100K, but keep the ownership in my name, charge no rent and accept this cost would be eventually returned when the property is sold (when the unfortunate happens)?

Many Thanks for any advice you may be able to provide.

Regards

RocketHas

by **maths** on Wed Jul 27, 2011 4:57 pm

IHT doesn't appear to be an issue.

Better to avoid POAT if possible.

Might be sensible for mother to contribute 100K owning 50% of new property and the balancing 50% to be owned by you and your wife.

On mother's death you inherit her 50% at mkt value and no CGT at that time.

On any sale soon thereafter will produce no gain on the 50% element inherited; CGT arises (18% and/or 28%) on the other 50% but you and your wife each get the £10,600 annual exempt amount.

by **Incredulum** on Thu Jul 28, 2011 9:34 am

OP can you guarantee the mortgage instead? Then there will be no CGT on eventual sale as mother owns entire property. I'm assuming IHT not in point owing to size of estate(?).

If IHT is in point, and if you're paying the mortgage possibly deem interest payments to bank to be a loan to mother so on death IHT is reduced.

by **rockethas** on Mon Aug 01, 2011 8:50 am

Hi All,

many thanks for all the replies. Could I please just clarify a couple of points.

If we both own 50% of the property, would we not need to charge 'market rent' on our 50% to avoid any issues? Would this not more into the GWR area?

As far as guaranteeing the mortgage, would a 75 year old be able to get a mortgage at all? She wouldn't have enough income to cover payment either, We would need to do that. So are there any tax implications there?

Again, thank you so much for your time and help.

Regards

Carl