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Apologies if this is a double post! Technology is not really my thing.
I have a btl I bought around 15 years ago which has been a great earner over the years. I paid £40k for it and the value now is around £170k which is a nice bit of capital appreciation. Problem is I used this property as a donor and remortgaged it back in the day many times and now owe the bank around £130k. The mortgage is a great rate of 2.5% and is good for another ten years. The obvious thing is to let it out again for £700 now that the tenants have gone.
however, my daughter has always loved this property and has asked to live there many times. She is in one of my other flats just now so the move would be an easy one. I am wondering if there is something clever I can do here regarding passing this on to my daughter so that it becomes her main residence without an actual sale taking place. Perhaps she could assume the mortgage for the next ten years and pay it off quicker since it is an interest only mortgage. At the end of the ten years the mortgage would be paid and she could live happily ever after! She could sell if she wanted but have no CG to pay as it is her main residence?
I realise death is the only way to avoid tax but wondered if any of you can think of a legal way for my daughter to gain this property without me having to pay CG on the £130k gain. I am in my early fifties and intend living a long time so gifting it wouldn't be a problem.
Worth a read: https://www.gov.uk/guidance/sdlt-transfe...bsp; And https://www.gov.uk/registering-land-or-p...r-property
Also, if you have never lived in the property and it's only ever been BTL, and the mortgage/ownership is transferred to your daughter (read 'SALE' then you'd be exposed to CGT on the £130k gain. Your daughter would not be exposed to CGT unless the property increased above the £170k 'purchase' price. You can not sell it to her for less than market value without being exposed to HMRC scrutiny.
One option may be to add her to the title of the property (you'd need to seek approval from the lender). If they allow this they will charge for it and this option is not without risk. What if you wish to sell in the future but she won't agree, or vive versa? Adding someone to the title is not always the answer : https://www.taxinsider.co.uk/1392-Putting_Someone_On_The_Property_Deeds_Is_Not_Necessarily_The_Answer.html
Another thing worth noting - if you continue to own it outright, and your daughter moves in, she'd have to pay you £700pcm or close to it ('Market Rate' in order to avoid potential tax evasion issues.
What is ‘Market Rate’?
Obviously, HMRC do not have the legal power to tell a landlord how much rent to charge, however, if a property is rented to a ‘connected’ person it is likely that HMRC will ask for confirmation that the rent being charged is at a commercial/market rate. This ‘market rate’ figure can easily be found by use of such websites as ‘Rightmove’ but HMRC will require written confirmation which can be obtained from a reputable local letting agency.
General Income Tax Implications
If the tenant is ‘connected’ to the landlord and pays an amount at less than the market rate then HMRC will enforce the rules which centre round the amount of expenses that can be claimed as a deduction from the rental income received.
The full amount of expenses incurred will not be allowed. However, as a concession HMRC will allow the landlord to claim a total amount restricted to the rental income derived from that property. Expenses incurred in excess of this figure are not allowed to create a loss, neither can they be carried forward to be utilised in any future year; they are, therefore, wasted.
As you appear to be a landlord with multiple properties it's worth reading more on this here: https://www.taxinsider.co.uk/659-Renting_Property_to_Connected_People_Below_Market_Value.html
Thanks for your detailed answer and apologies for late reply!
The first link didn't lead to anything but I get the message that there is not a lot I can do to avoid the CGT. I think it is probably best to keep the mortgage as it is and give to my daughter at zero rent but don't attempt to deduct anything whatsoever including interest payments then I am doing nothing wrong, right?
In 10 years time I can pay the mortgage off then just let her live there for as long as she likes and if that is beyond my life, she will get the property anyway - or will my wife get it! life is too complicated.........
Can I give you a possible Plan
Let Your daughter move into the property as a Tenant
and pay you a rent
Then write life Insurance in trust with your daughter as the Beneficiary
When you die your daughter would have the Life Insurance to pay off the Mortgage Tax Free
outline in your will that the property is for her and when you die subject to IHT she then owns the property
You don't need to give it to her now
saves a lot of time and costs just write an insurance Policy plain and simple
Learn Change and Adapt ?????
Thank you for your suggestion which sounds like a plan - would I need to charge her market rent for the next 30 years that I hope to live?
Would I be able to move in for perhaps 6 months then sell it CGT free since it would be my main residence? I am just renting myself at the moment and have rented out my main residence for the last 7 years. This raises another question, can I move back into my main residence at some point and sell this CGT free
Hi you can nominate any house you own as your main residence ??? so if you sold it you woud not pay CGT because its your home
But I would take advice on this point
If you are going to live in the house with your daughter You could use rent a room to collect rent ad the income would be tax free up to I think £7500 a year
Wasn't planning to live in the house with her, just thinking of other ways to avoid the CGT! If i did let her live there I wouldn't want to be charging her the full £700 rent - the mortgage is circa £300 so if she paid that I would be fine. I suppose the length of mortgage will decide what is to be done and that is good for another 10 years - I will have to do something then to give the bank their £130k - the capital gain will be even larger so the problem even bigger. I suppose 70% of the gain is better than 100% of nothing. I might find the property is worth double in ten years and paying off the bank not such an issue.
I was thinking if there was no way of giving her the property I could move in myself and sell cgt free - I could then do that with some other properties I have (including my main residence) and reduce my portfolio (my section 24 liabilities) without paying the cgt. I have a lot in areas I would prefer not to live but there are certainly a few I would be happy to spend time in.