Help: Buying Dad's House For Cash And Renting It To Him

[PAULWDN]

My Dad wants to sell my wife and I his house for the remaining cost of his mortgage. i.e. His mortgage has roughly £11,000 outstanding and he wants us to pay this and transfer the house into our names. We already have our own house so the plan then would be to leave my Dad living in his house and he wants to pay us rent for a year or so until he finds somewhere else to live.

So effectively we are looking at a buy-to-let with my Dad as the tenant for a year. After he moves out we will be selling the house (after a lot of work – roofing –window etc).

I have been trying to navigate my way through the taxation laws to find the best way to go about this but every example I can find talks about the effect of actions against a buy-to-let mortgage. We will be paying the £11,000 outright with a long term loan (I know we will have to say the money is for house repair etc).

Does anybody have any suggestions on the best way to go about this venture. I’m not after detailed explanations but if somebody could point me in the right direction it would help. The main aim is to reduce any taxation costs.

I have been reading about setting up a small company with my Dad’s house as a business purchase to rent (to him). Also, the purchase will involve my Sister as well so if she is added to the paperwork can I make use of her capital gains tax allowance in the final sale.

Any help in the right direction would be brilliant

Thanks

Paul

[Rozza]

We will be paying the £11,000 outright with a long term loan (I know we will have to say the money is for house repair etc).

The main aim is to reduce any taxation costs.

Also, the purchase will involve my Sister as well so if she is added to the paperwork can I make use of her capital gains tax allowance in the final sale.

Snip..

Or in other words

Hi guys, i would like to defraud the loan company and then the tax man, can anyone explain how to do this?

[PAULWDN]

My advice would be to seek professional advice from a solicitor and/or tax accountant. Posters on here give general advice but you cannot give enough details for it to be worthwhile (eg country of domicile will make a difference. Scots law is different from english law)

Thank you - we will be seeking the advice of a solicitor - I was just wanting to have an idea of the questions/requests I would be putting to them when I do. The house in in England.

Or in other words

Hi guys, i would like to defraud the loan company and then the tax man, can anyone explain how to do this?

Well I've got to admit that there is going to be a lie on the loan application but we do plan to use a large amount of the loan to pay for repairs (i.e. We will be taking out approx £15,000 - using £11,000 to purchase and the rest for repairs).

However, we aren't trying to defraud the tax man. I don't see how you come to that abusive conclusion when all I'm asking is for advice. If there are legal ways in which to reduce the tax burden then why should I not make use of them. Before I started looking into this I had never heard of Entrepreneurs’ tax Relief or the capital gains tax allowance. Having researched it on the HMRC website I know the Entrepreneurs’ Relief has been set so that it cannot benefit Buy-to-Let but there is information about your spouse being on the books for a purchase to increase your capital gains tax allowance. By your thinking the HMRC telling me this means they are helping me to defraud.

I'm just looking for a little clarification and guidance.

Paul

[Rozza]

Well I've got to admit that there is going to be a lie on the loan application but we do plan to use a large amount of the loan to pay for repairs (i.e. We will be taking out approx £15,000 - using £11,000 to purchase and the rest for repairs).

However, we aren't trying to defraud the tax man. I don't see how you come to that abusive conclusion when all I'm asking is for advice. If there are legal ways in which to reduce the tax burden then why should I not make use of them. Before I started looking into this I had never heard of Entrepreneurs’ tax Relief or the capital gains tax allowance. Having researched it on the HMRC website I know the Entrepreneurs’ Relief has been set so that it cannot benefit Buy-to-Let but there is information about your spouse being on the books for a purchase to increase your capital gains tax allowance. By your thinking the HMRC telling me this means they are helping me to defraud.

I'm just looking for a little clarification and guidance.

I understand you want clarification and guidance but it appears you want to do the following.

First you will lie on the loan form, then it seems like (and i admit i could have the wrong end of the stick) you dont want to pay any of the tax that would become payable on a below value asset transfer. or tax on the income (rent) and the company transfer is to try to avoid CGT presumably (doesnt work like that but anyway).

Sorry if i come across harsh, but its schemes like this coupled with liar loans and btl that have got us in a mess in the first place

Edited August 3, 2010 by Rozza

[okaycuckoo]

Sounds tricky. You need advice about gifts and inheritance tax and resulting trusts.

[porca misèria]

My Dad wants to sell my wife

Is she his to sell?

and I his house

You seem to have the better part of that bargain!

[bug09]

However, we aren't trying to defraud the tax man. I don't see how you come to that abusive conclusion when all I'm asking is for advice.

There's tax avoidance which is what the professionals will help you to achieve.

And then there's tax evasion ... which is what you're effectively setting out to do in your scenario.

So when Rozza replied, it wasn't abusive, it was accurate. You're at the point of getting a feel for how things work before seeing your solicitor, so now you know, this is how it works.

[lady_muckfish]

Is she his to sell?

You seem to have the better part of that bargain!

I'm so glad I'm not the only one who kept on reading it like that!

Plus - should be me, not I.

Maybe should have written "My father would like to sell his house to me and my wife"...

[jonb]

My Dad wants to sell my wife and I his house for the remaining cost of his mortgage. i.e. His mortgage has roughly £11,000 outstanding and he wants us to pay this and transfer the house into our names. We already have our own house so the plan then would be to leave my Dad living in his house and he wants to pay us rent for a year or so until he finds somewhere else to live.

So effectively we are looking at a buy-to-let with my Dad as the tenant for a year. After he moves out we will be selling the house (after a lot of work – roofing –window etc).

I have been trying to navigate my way through the taxation laws to find the best way to go about this but every example I can find talks about the effect of actions against a buy-to-let mortgage. We will be paying the £11,000 outright with a long term loan (I know we will have to say the money is for house repair etc).

Does anybody have any suggestions on the best way to go about this venture. I'm not after detailed explanations but if somebody could point me in the right direction it would help. The main aim is to reduce any taxation costs.

I have been reading about setting up a small company with my Dad's house as a business purchase to rent (to him). Also, the purchase will involve my Sister as well so if she is added to the paperwork can I make use of her capital gains tax allowance in the final sale.

Any help in the right direction would be brilliant

Thanks

Paul

You have to buy it for proper market value. He could give you the money to buy it, then there is the potential of inheritance tax if he dies within 7 years.

You can claim the interest cost on a loan used to finance it. Interest on an £11k loan won't be much, but you can at any point get a buy to let mortgage on the property up to the value of the property at the time you acquired it and use the money to pay off your own mortgage.

Any costs to bring it up to standard are likely to be "improvements" rather than "repairs", so you can claim these against the CGT bill when you sell the property, but not against the income tax on your rental income.

Setting up a company is generally a bad idea for a property business, because the company will pay corporation tax on any rental income profits and capital gains at the large company rate, currently 28%, and then you have to pay additional income tax on any money you take out of the company. If you must have a limited liability entity owning the property, it is generally better to go for an LLP, because then you pay income tax / CGT on your share of the LLP in the same way that you would on your share of the property if you owned it jointly.

Yes, if you involve your sister, you can make use of her CGT allowance.

Another thing to look at is the possibility of "flipping" the property before selling it. If you make it your main residence for a period of time, one month is usually enough, then you get the last three years of ownership CGT free. That might in your case wipe out the CGT bill completely.