1

Financial Details:

  • House purchase price £125k.
  • Estimated market value £180k.
  • Parents combined yearly salary £65k.
  • Childs income £35k.

Explanation:

My parents purchased a house in 2013, with the idea of my partner and I living there. The house was purchased and remains solely in my parents name.

We have been paying 3/4 the mortgage, and as such are due to receive 3/4 of the profit, minus the initial deposit my parents put up.

After the sale, we will:

  • Pay off the existing mortgage (£98k)
  • Reimburse my parents for the deposit (£22k)

This should leave us with £60k to be divided between my parents and I.

  1. Will capital gains apply to my parents on the full £60k or their £15k?
  2. Will I have to pay any tax if they gift it to me?

If any other details are required, please ask.

  • 1
    "We have been paying 3/4 the mortgage, and as such are due to receive 3/4 of the profit" Note that this is only true if that's what you've agreed to with your parents. I would not be shocked if many people in the same circumstance assumed that you could pay 100% of the mortgage (in the form of rent), and 100% of the proceeds of the house (and therefore the profit) would be due to your parents. If you've agreed to something differently (in writing, I hope), that's fine. Just don't assume that this is the natural way to arrange things. – Grade 'Eh' Bacon Sep 13 '16 at 13:07
  • This has all been agreed in with my parents. – Joshpbarron Sep 13 '16 at 13:36
  • I believe your parents are liable for CGT on the full profit as they are the sole owners. However they may be able to gift you the house before selling. Consult a tax specialist. – TheMathemagician Sep 14 '16 at 9:55
4

1) You parents will have to pay tax on the gain as it wasn't their primary home.

You don’t pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following apply:

  • you have one home and you’ve lived in it as your main home for all the time you’ve owned it
  • you haven’t let part of it out - this doesn’t include having a single lodger
  • you haven’t used part of it for business only
  • the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
  • you didn’t buy it just to make a gain

As I look at it, it is your parents are the ones who own the property and they will have to pay on £60000. But as you say you pay part of the mortgage, I would go to a tax advisor/accountant to confirm if they will only pay on the £15000. I couldn't find any guidance on that matter on gov.uk

2) Inheritance tax will not be levied on it as it is below £325000, but tax will be levied on £325000, less £3000 annual gift allowance.

Two articles for further information -

GOV.UK's Tax when you sell your home

Money.co.UK's Gifting money to your children: FAQs

  • I suppose the question is, is capital gains tax applied at the end of the year, before or after gifts are deducted. – Joshpbarron Sep 13 '16 at 13:45
  • 4
    Hey, DC - nice detailed answer. I just added text instead of "source1 / source2" , I kind of like to know where I'm going and not have blind links. – JoeTaxpayer Sep 13 '16 at 13:47
  • @Joshpbarron Gifts paid to other people do not reduce your income. – Grade 'Eh' Bacon Sep 13 '16 at 14:01
  • @Dumbcoder Are you sure this gift is correct, if he has agreed with his parents that he will receive some portion of the profits? Perhaps for tax purposes, that agreement to share the property could be considered a share in the ownership and therefore a share in the capital gain? – Grade 'Eh' Bacon Sep 13 '16 at 14:02
  • 3
    There is no such thing as "gift tax" in the UK. The gift would be untaxable when made but could potentially count as part of the parent's estate, and therefore impact the inheritance tax due, if one or both of them die within 7 years of making it. – Nigel Harper Sep 13 '16 at 14:32

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.