planning ahead for cgt

[zzz]

Hi

Would be very grateful for a little advice.

My husband and i a currently purchasing my parent house which we live in. They live in our house and we are remortgaging that to a buy to let mortgage, they are going to be paying the mortgage thtough ourselves.

I suppose effectively they are paying us rent as they will be paying more than the mortgage payments are.

As we will be owning two propertys, i understand when we come to sell the buy to let or we die and it passes to our children there will be a capital gains isssue. Obviousley we would like to eliminate or reduce this. I dont work and my husbands just pays standard tax. not 40%

Just wondering what steps we need to take, also do we need to declare the rental income. they are paying about £150 more than the mortgage payments will be.

We have owned the property since 2005 when it was transfered to me upon divorce.

Any pointers would be great,

Many thanks

Michelle

[Peter D]

Renting out your Prime Residence has the advantage of it being exempt from CGT for 36 months and then attracting Letting Relief of up to £40,000 per owner. This may keep the property free from CGT for 5,6,7, or even 8 years. Read IR283 on the HMRC web site and associates pages. Would suggest you look at formalising the property as a Rental Property and be fully complaint with regulations that apply to this and inform HMRC so you receive a SA at the appropriate time to declare the rental profit/loss. Who's name is the BtoL held in as it appears it was transfered to 'you' on a divorce settlement. If the rental property was owned Tenants in Common and apportioned at 1% his and 99% yours then that would be the apportionment of the of the rental income/profit and the gain in the event of a sale but with the new rules a flat rate of 18% CGT will be levied after variuos deductions and two sets of CG Allownace, presently £9,200 each.
If you do not declare the rental profit/loss it is not a rental property and Letting relief will not apply. How long have your parents lived in your old house. ? There is a lot involved here as there may or may not be IHT issues. Please provide MM/YYYY dates of these changes and est estate and property values. Regards Peter

[zzz]

Hi Peter,

Thank you for your reply, in answer to you questions,

My parents have lived in our house since april 2006, we have lived in theirs since april 2006.

The buy to let is to be in both my husbands name and mine. Market value Approx £155,000 Mortgage Value £105,000. House is currently in both our names on mortgage to be redeemed.

We are purchasing my parents old home as joint tennants. To The value of £136,000 to clear their mortgage. Market Value in the region of £160,000.

Would it be best for tax purposes to hold the buy to let as tennants in common. Thus using my tax allowance for the rental income as i do not work. Would this make any difference to cpital gains allowance and lettings releif.?

Probally a daft question but what is an SA ?

Regards Michelle.

[Peter D]

Self Assessment Tax Return. What was the value of the property when you first "rented" to your parents. If the rental property was owned Tenants in Common and apportioned at 1% his and 99% yours then that would be the apportionment of the rental income/profit by the use of a Form 17 sent to HMRC within 60 days. I think you need a clear plan on what you are trying to do and do some reseach. Then I think you need to run this passed a solicitor, perhaps the one the purchases the house that you presently live in to ensure you do not make a committment that can not be undone. On the surafe HMRC could argue that you moved out in April 06 and nearly 2 years of your PPR exemption has already passed, think about what you say and whay you can prove if asked. Regards Peter

[zzz]

Value of property when parents moved in was probally around £145,000. they have never paid rent to us, we each carried on paying our own mortgages. it is only now being remortgaged as a buy to let. The property has always been held as joint tenants.

The aim of all this is to keep both houses in family, and releive my parents from the ties of their mortgage.

we are keen to escape a huge tax bill, when we evetually sell rental property, as we wish to use the equity to clear the mortgage on our home.

Solicitors are fully aware of the circumstances, however they have not offered any advice.


thank you for all your advice so far.

Regards Michelle

[Peter D]

I do not wish to say too much on an open forum but may be the trigger point is the B2L mortgage. That may be the time to formalise your parents renting from you, and you buying their home. This should then be reported to HMRC and the property must be compliant as a rental property and an AST rental agreement put in Place. I'll say no more. Seek advise from a well versed accountant or CTA. Regards Peter