LandlordZONE

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Aug, 2014

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  1. #1
    Join Date
    Jan 2005
    Location
    Middlesbrough
    Posts
    95

    Question elderly parents want to sell house to me - what are the tax implications?

    Both of my parents are now in their 70's.

    Their house is mortgage free and they are wanting to sell it to me and then rent it back from me.

    Their house has a current market value of £150k (based on sales of similar properties). I am happy to pay £150k for the house

    Our plan is to then set up an AST as normal, and I would charge my parents a market rent of £100 per week (based on similar rents on my other btl properties)

    Can anyone clarify the following...

    1. If my parents were taken into care due to poor health at some later date would they have to use their £150k savings (from the sale of the house) to pay for their care?

    2. What tax implications would there be for me as a landlord? (I would declare the rental income on my land/property tax return)

    3.Is it true that HMRC now allow lettings relief of £40k on 'dependant relatives' who have rented from you? (I have recently read this in a members article by James Bailey from property tax portal)

  2. #2
    Join Date
    Sep 2005
    Posts
    542

    Default

    It is very unclear to me why you want to do this - unless to release equity in the house for your parents to live on.You will have to pay tax on the rental income.

    3. Yes. But that is a CGT exemption available when you eventually sell the house, and you have to live in the house at some point. It is not an income tax relief. I think what you may have read about is this:

    http://www.hmrc.gov.uk/cgt/cgt-recent-changes.htm
    The contents of this note are neither advice nor a definitive answer. If you plan to rely on this, you should pay somebody for proper advice.

  3. #3
    Join Date
    Jan 2007
    Posts
    2,229

    Default

    1/. Your action to remove the property from their estate will be ignored by any LA assessment as it is clearly avoidance and they will make the assessment on the full estate value.
    2/. You will be liable for Income Tax on the declared rental profit and CGT on the gain in house prices whilst you were the owner and no PPR Relief.
    3/. I think you have miss-undestood. Letting Relief will not be available as it was never your PPR.

    If one of your parents goes into a home there is no assessment made and they will not attempt to sell the property whilst the spouse continues to live there. If their wills leave 1/2 the house to you and one of them passes away then you own half and again the LA will not sell the house. This is a complex area of property in trust, lifetime interests and the changing laws. You should seek well versed advise on this matter and perhaps read about 'Property Protection Plans' and Discretionary Trusts. Regards Peter

    Dependant relatives allowance is for a person or persons who bought a house as owners but for the dependant relatives to live in. This was granted upto 17th March 1988 from memory.
    Regards Peter

  4. #4
    Join Date
    Sep 2005
    Posts
    542

    Default

    >>1/. Your action to remove the property from their estate will be ignored by any LA assessment as it is clearly avoidance and they will make the assessment on the full estate value.

    I don't think there's any avoidance suggested here. Replacing a house with cash is scarcely removing property from the estate, is it?
    The contents of this note are neither advice nor a definitive answer. If you plan to rely on this, you should pay somebody for proper advice.

  5. #5
    Join Date
    Jan 2007
    Posts
    2,229

    Default

    I see what you mean but money walks and gets gifted, the property does not walk and the LA will overturn an action that deprives the estate of value. And they are getting tougher. Regards Peter
    Last edited by TaxationPete; 24-08-2007 at 19:26 PM. Reason: Typo

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