How to get a mortgage?

[Daniel Larn]

the figure HMRC will take when compiling the vendors CGT liability will be £360k no matter what price the land is sold for, is the vendor aware of this?

Definitely true, this applies whether you gift it or sell it as well.

 

[S J H]

Sorry to hijack, but would have a house with a right of way to access it cause problems in getting a mortgage?

 

[Daniel Larn]

Sorry to hijack, but would have a house with a right of way to access it cause problems in getting a mortgage?

It shouldn't, but formal access can be a bit of a tricky one it isn't done right.

The right of way needs to be explicitly defined in all of the conveyance documents.

 

[milkloss]

It shouldn't, but formal access can be a bit of a tricky one it isn't done right.

The right of way needs to be explicitly defined in all of the conveyance documents.

And just be careful if the right of way has use restrictions on it. Agricultural use only as an example.

 

[Walterp]

What a shambles!

A flawed proposition which basically arises from the arse-backward way the plot was developed.

Go back to the drawing board, consult a solicitor and an accountant as to how best to resolve it. Then look for a mortgage, once it's been sorted out properly.

The biggest point is tax and the potential CGT liability seems to have been overlooked. Potential liability is c. £60,000, so that more effort is needed to reduce or eliminate this by careful working back over what has been done,who paid for what, etc.

There is an excellent case for re-casting the arrangement at full market value, with a partial lump sum ponied up and the balance left owing as a loan to the OP and his partner. It can always be forgiven later, if they both start acting more sensibly than they have so far.

Do it now, before Jeremy Corbyn becomes PM and doubles the (very generous) CGT rates.

 

[Goweresque]

There's no problem so long as you are ACTUALLY selling it, and everyone pays taxes on transactions as per the rules. there is no law that states anything has to be sold for a particular value.

I think you'll find that the taxman will be very interested in any disposals of assets at less than market value. The OP should ask an accountant sharpish about the CGT implications of such a sale.

As far as I'm aware any disposal of assets is a taxable event for CGT, even if you give it away for nothing, its as if you sold it for market value. Market value itself can be contested of course, but its still going to be somewhere close.

Edit: yes - market value is used for CGT calculations in cases of sales at less than market value:

https://www.gov.uk/capital-gains-tax/market-value

So the OP's father would pay CGT at 20% (at current rates) on the entire £360k value, less any purchase/building costs and his allowance.

 

[Daniel Larn]

I think you'll find that the taxman will be very interested in any disposals of assets at less than market value. The OP should ask an accountant sharpish about the CGT implications of such a sale.

As far as I'm aware any disposal of assets is a taxable event for CGT, even if you give it away for nothing, its as if you sold it for market value. Market value itself can be contested of course, but its still going to be somewhere close.

Edit: yes - market value is used for CGT calculations in cases of sales at less than market value:

https://www.gov.uk/capital-gains-tax/market-value

So the OP's father would pay CGT at 20% (at current rates) on the entire £360k value, less any purchase/building costs and his allowance.

This is what I was driving at, you can sell it however you like. But you still need to pay all of the appropriate fees, taxes etc.

They aren't bothered about what you are selling it at, but there are capital gains implications regardless.

 

[RushesToo]

If the residents were sitting tenants the value of the house will drop significantly?

 

[Walterp]

If the residents were sitting tenants the value of the house will drop significantly?

Good try, but no cigar....

CGT applies to a 'disposal' of property, so any subsequent transactions (such as the grant of a subsequent tenancy by the transferee) are irrelevant.

But the good news is that, if the transfers that actuate the CGT charge have already taken place (it's not very clear from the OP, but I guess they have) it is still possible to prepare corrective transfers that reflect what has actually occurred, and the parties' true wishes.

The bad news is that the solicitor who advised in the first instance may, perhaps, be open to an allegation of negligence because tax advice is well within the purview of a solicitor's responsibility to his client.

All this could, of course, have been avoided by seeking decent advice in the first instance.

The path to Hell is paved with good intentions...

 

[Pasty]

It is possible to elect to 'hold' over a CGT gain to the reciever but this would depend on the circumstance and previous use so would need expert advice.

 

[Goweresque]

It is possible to elect to 'hold' over a CGT gain to the reciever but this would depend on the circumstance and previous use so would need expert advice.

Hold Over Relief applies to business assets, not residential property:

https://www.gov.uk/gift-holdover-relief

 

[Pasty]

Ah yeah, sorry. But surely if it's a principle dwelling house, there is no liability anyway? Need to go read the OP again.

 

[Goweresque]

Ah yeah, sorry. But surely if it's a principle dwelling house, there is no liability anyway? Need to go read the OP again.

Its a new build on a plot that was granted planning. Possibly if the owner had moved into the new house and sold his old residence to the children at a knock down price that might have avoided any CGT liability?

 

[Pasty]

Its a new build on a plot that was granted planning. Possibly if the owner had moved into the new house and sold his old residence to the children at a knock down price that might have avoided any CGT liability?

Yes. It might just need some adjustment of living arrangements for a year or 3? Needs some good advice anyway.

 

[Cowabunga]

is the tax man ok re selling asset to family at less than market value ? I thought this kind of thing was very much frowned up by HMRC ?

There's no 'right amount' for a sale. His father could even gift it for free with no tax to pay on his death as long as he lived seven years. Seems silly to transfer between family in a way that generates tax liability on any family party though, if that can legally be avoided. Especially if the tax is a large percentage of the transaction.
There must surely be a better way than that of pishing wealth away, or avoiding doing so.

 

[Pasty]

Problem is predicting this stuff. My parents totally screwed it all up and ended up setting up a trust and then Mum died within a year and IHT would have covered all of it. Has cost me personally tens of thousands. I don't hold it against them but I think most people just leave it too long.

 

[Kidds]

Most sensible thing at this point would be for father to move in to the property for a year, no CGT to pay and no complications come mortgage time.

It isn't my property nor is it me trying to get a mortgage, I asked on here as I thought one of you lot out there must have done similar.

 

[Goweresque]

There's no 'right amount' for a sale. His father could even gift it for free with no tax to pay on his death as long as he lived seven years. Seems silly to transfer between family in a way that generates tax liability on any family party though, if that can legally be avoided. Especially if the tax is a large percentage of the transaction.
There must surely be a better way than that of pishing wealth away, or avoiding doing so.

The landowner in this has been very badly advised, he's created a large CGT liability by applying for planning on his own land, thereby getting a planning uplift in value, then building the house with his own money, creating more value, which now all lies within his estate, all before giving anything away.

Far better would have been to give the land away without planning, which could well have benefited from holdover relief for CGT, and indeed APR for IHT purposes, being still agricultural land at that point. The young couple then apply for planning themselves, and borrow the money to build the property from the father. They would then own a house and land outright in their own names, all the increase in capital value would be theirs, not the fathers, and they would have a property they could mortgage to repay their loan to the father. Quite possibly zero tax to pay, and even if there was tax to pay it would be on the lower value of 3 acres of land without planning permission, for which a sum could be added to the mortgage to pay the tax if necessary.

 

[Walterp]

Most sensible thing at this point would be for father to move in to the property for a year, no CGT to pay and no complications come mortgage time.

It isn't my property nor is it me trying to get a mortgage, I asked on here as I thought one of you lot out there must have done similar.

'Oh what a tangled web we weave, when first we practise to deceive...' (Sir Walter Scott).

It's one option, certainly.

The drawback would be that, once the father served notice on HMRC that he had altered his PPR to the new property (plus under 1 acre of land) he would be exposed to the risks posed by giving up the CGT and APR benefits normally accruing to the main farmhouse.

Plus the notice would, perhaps, put HMRC on notice that the transaction is a sham and raise questions that might be hard to answer if a HMRC enquiry was raised subsequently. An awkward strategy, if anything were to go wrong.

 

[Kidds]

There is no main farmhouse, he lives elsewhere with his wife and I believe it is her house not his. As they are married I don't know if it makes a difference who owns it.