Transfer of property within family. Capital gains tax and stamp duty implications
Question:
I am selling my house to my mother. She is selling her house however given the state of the property market it may be a little while before it sells.
I'm looking for ways around this and am considering goimng ahead with the transfer to my mother. She will need to owe me the agreed purchase price.
My daughter will then purchase the house off her at its market value. She will raise a mortgage and use the funds to pay me.
I'm looking into the tax implications of all this, particularly given the transactions take place between close family members.
I would expect that there would be stamp duty and capital gains implications, although as the properties are both main residences any capital gain would presumably not be a key issue?
My question is therefore -- what are the tax implications of this scenario?
Answer:
Our view on this is as follows:
On the transfer from of your property (property 'A') to your mum, this would be a market value disposal for CGT purposes. Therefore irrespective of the actual agreed sale price the disposal proceeds for the purposes of the CGT calculation will be the market value. However as the property has been your main residence any gain would be fully exempt from CGT.
In terms of stamp duty ('SDLT') the actual disposal proceeds (ie the amount that your Mum promises to pay to you) will be the consideration for SDLT purposes. She will then pay the SDLT liability.
The position then is that your mum owes you the outstanding proceeds. You may secure this against one of the properties if you wish.
She then transfers property B to her grandaughter. Again this will be a market value disposal for CGT purposes. Any debt secured on the property is ignored for CGT purposes and the deemed disposal proceeds would be the market value of the property. There would be no gain arising to your mum as the property was her main residence, and the base cost of the property for a future disposal would be the market value at the date of transfer to the Grandaughter.
The main problem is in terms of SDLT. The SDLT regulations provide that the assumption of liability for existing debt is chargeable consideration for stamp duty land tax purposes. Therefore although there is no actual consideration for the transfer between your Mum and her Grandaughter, for SDLT purposes the amount of the debt owed to you could be taken into account. As such SDLT could be payable by the Grandaughter as she is purchasing the property subject to the debt.
A future remortgage by the Grandaughter would not have any tax implications and the cash could be transferred to you free of any taxes.
About the Author
The Author of this article is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).
He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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About the Author
The Author of this article/answer is our site Editor, Lee Hadnum. Lee is a rarity among tax advisers having both legal and chartered accountant qualifications. After qualifying a prize winner in the Institute of Chartered Accountants exams, he also went on to become a chartered tax adviser (CTA).He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.
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Disclaimer
=============================================================i) Please note that the articles/answers contain general guidance only and do not constitute accountancy, tax, investment or other professional advice.
ii) The contents of this article/answer are for information only and are intended to assist readers in identify any tax planning opportunities that may be available to them. The information contained in this answer is not intended to be a substitute for taking proper taxation advice and should not be relied upon in this way. Always consult a qualified accountant or taxation adviser. Your situation will then be looked at individually and specific advice relevant to your circumstances can be given. The Expert does not accept responsibility for any loss arising as a result of reliance on any information contained in this answer.
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