A Property/Tax Conundrum For The Learned People On UK.Finance


T

Tamale-Loco

Situation is this:
My sister, and BIL own their house outright, but, for the past few years, the area its in
is going down the gurgler at a fast rate of knots
I shall soon be selling MY property and going abroad to live. Therefore i will have at my
disposal a sum of money ...... some of which i would like to utilise to get them out of
their predicament, by providing the money in order for them to move out of the area, and
into a better one.
What this could well entail is, firstly, me selling up my house, and banking the money.
Then they look for suitable property within a set price limit, with me living with them at
their present abode. When they find a suitable place i provide the cash for them to buy
this "new" place and put their "old" house on the market. When the "old" house is sold,
they would transfer the money they got from the sale of the house into my account
(probably a LOT less than i would provide to buy their house, and wouldnt sell quickly,
but thats not a problem to me) .
What i wish to know is what are the tax implications of doing the above?
Anyone have any better ideas?
I dont mind being out of pocket for the direct benefit of my sister and BIL, but i SURE
dont want to pay oodles of any kind of tax into the bargain. Nor do i want to burden them
with any.


T-L
 
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T

Tamale-Loco

Mogga said:
So what if they can't sell their home or they sell it for £5 and a bag
of beans?
--
Then i get £5 and a bag of beans
Your point is....................what?

T-L
 
M

Mogga

Situation is this:
My sister, and BIL own their house outright, but, for the past few years, the area its in
is going down the gurgler at a fast rate of knots
I shall soon be selling MY property and going abroad to live. Therefore i will have at my
disposal a sum of money ...... some of which i would like to utilise to get them out of
their predicament, by providing the money in order for them to move out of the area, and
into a better one.
What this could well entail is, firstly, me selling up my house, and banking the money.
Then they look for suitable property within a set price limit, with me living with them at
their present abode. When they find a suitable place i provide the cash for them to buy
this "new" place and put their "old" house on the market. When the "old" house is sold,
they would transfer the money they got from the sale of the house into my account
(probably a LOT less than i would provide to buy their house, and wouldnt sell quickly,
but thats not a problem to me) .
What i wish to know is what are the tax implications of doing the above?
Anyone have any better ideas?
I dont mind being out of pocket for the direct benefit of my sister and BIL, but i SURE
dont want to pay oodles of any kind of tax into the bargain. Nor do i want to burden them
with any.


T-L
So what if they can't sell their home or they sell it for £5 and a bag
of beans?
 
M

Mogga

Then i get £5 and a bag of beans
Your point is....................what?

T-L
You are very kind to your sister,

I'd imagine you'd be better putting it in writing that its a loan and
then you can avoid tax problems that might occur from moving lumps of
money about.
Inheritance tax rules are about gifts within 7 years of death I think.
 
J

John Boyle

Tamale-Loco said:
Situation is this:
My sister, and BIL own their house outright, but, for the past few
years, the area its in
is going down the gurgler at a fast rate of knots
I shall soon be selling MY property and going abroad to live. Therefore
i will have at my
disposal a sum of money ...... some of which i would like to utilise to
get them out of
their predicament, by providing the money in order for them to move out
of the area, and
into a better one.
What this could well entail is, firstly, me selling up my house, and
banking the money.
Then they look for suitable property within a set price limit, with me
living with them at
their present abode. When they find a suitable place i provide the cash
for them to buy
this "new" place and put their "old" house on the market. When the
"old" house is sold,
they would transfer the money they got from the sale of the house into
my account
(probably a LOT less than i would provide to buy their house, and
wouldnt sell quickly,
but thats not a problem to me) .
What i wish to know is what are the tax implications of doing the above?
Anyone have any better ideas?
I dont mind being out of pocket for the direct benefit of my sister and
BIL, but i SURE
dont want to pay oodles of any kind of tax into the bargain. Nor do i
want to burden them
with any.
Just be sure to lend them the money (i.e.not a gift) and have written
evidence of this, and to take a legal charge over their current house
and their new one. This means you get your money back whenever they are
sold. When you get repaid you release the charge on the other property.
If you charge them interest then that will be taxable in UK. This way
will avoid IHT and CGT etc.,
 
R

Ronald Raygun

John said:
Just be sure to lend them the money (i.e.not a gift) and have written
evidence of this, and to take a legal charge over their current house
and their new one. This means you get your money back whenever they are
sold. When you get repaid you release the charge on the other property.
If you charge them interest then that will be taxable in UK. This way
will avoid IHT and CGT etc.,
CGT would only be an issue for him if he buys the house in his name
and just lets his sister live in it (rent free or not, but if not,
this would of course be taxable much as loan interest would be, albeit
at a different rate). So making it a proper loan will indeed avoid CGT,
but it may be impossible to avoid IHT, depending on the circumstances.
The only sure-fire way is to ensure that he dies a pauper, i.e. with an
estate worth less than the NRB (sorry, "threshold").

He has hinted that he's not all that bothered if he doesn't get all
the money back, and so if he forgives part of the loan that would
amount to a gift, which would have IHT implications.

If he doesn't forgive the loan, but part of it remains outstanding
when he dies, it becomes an asset in his estate and so there will
be IHT implications anyway.

Furthermore, and we don't know the whole story, so I may be reading
stuff between the lines that isn't there, the fact he's not bothered
suggests that he may not have any other dependants whom he would be
depriving by supporting his sister. He may well be planning to leave
his entire estate to her in his will anyway. If that's the case, it'd
be no problem for the estate to be owed money by her, since she'd be
getting it back anyway. But it would still bear on the IHT bill, and
it seems a better bet to forgive the loan early and hope to survive
for 7 years.
 
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J

John Boyle

Ronald Raygun said:
CGT would only be an issue for him if he buys the house in his name
and just lets his sister live in it (rent free or not, but if not,
this would of course be taxable much as loan interest would be, albeit
at a different rate). So making it a proper loan will indeed avoid CGT,
but it may be impossible to avoid IHT, depending on the circumstances.
The only sure-fire way is to ensure that he dies a pauper, i.e. with an
estate worth less than the NRB (sorry, "threshold").

He has hinted that he's not all that bothered if he doesn't get all
the money back, and so if he forgives part of the loan that would
amount to a gift, which would have IHT implications.
Yes, I missed that, but perhaps if he secured the loan purely on the
first house and it didnt sell for enough dosh then possibly he could
suffer a bad debt.
If he doesn't forgive the loan, but part of it remains outstanding
when he dies, it becomes an asset in his estate and so there will
be IHT implications anyway.

Furthermore, and we don't know the whole story, so I may be reading
stuff between the lines that isn't there, the fact he's not bothered
suggests that he may not have any other dependants whom he would be
depriving by supporting his sister. He may well be planning to leave
his entire estate to her in his will anyway. If that's the case, it'd
be no problem for the estate to be owed money by her, since she'd be
getting it back anyway. But it would still bear on the IHT bill, and
it seems a better bet to forgive the loan early and hope to survive
for 7 years.
Yes.
 
R

Ronald Raygun

John said:
Yes, I missed that, but perhaps if he secured the loan purely on the
first house and it didnt sell for enough dosh then possibly he could
suffer a bad debt.
Are you suggesting that by dressing the gift up as a bad debt it would
escape IHT? If so, then surely where the debt is secured is irrelevant.

It's still a debt, and what would make it "bad" is if she can't or
won't pay, and if he doesn't take reasonable steps to recover the debt,
that would amount to forgiving and hence gifting.

It's not as though she was going to vanish without trace, is it?
Especially if she turns out to be executrix of his estate!
 
J

John Boyle

Ronald Raygun said:
Are you suggesting that by dressing the gift up as a bad debt it would
escape IHT? If so, then surely where the debt is secured is irrelevant.
It needs tp be secured to prove the debt is bad so that when the 1st
house is sold (in this case the suggested charge on the other house
would not be taken) and there wasnt enough dosh to repay the loan then,
er, thats it.
It's still a debt, and what would make it "bad" is if she can't or
won't pay, and if he doesn't take reasonable steps to recover the debt,
that would amount to forgiving and hence gifting.
It would have to be tarted up properly.
It's not as though she was going to vanish without trace, is it?
Especially if she turns out to be executrix of his estate!
!! Quite!
 
R

Ronald Raygun

John said:
It needs tp be secured to prove the debt is bad so that when the 1st
house is sold (in this case the suggested charge on the other house
would not be taken) and there wasnt enough dosh to repay the loan then,
er, thats it.
No that's jolly well not it. If your mortgagee repossesses your house
and sells it for less than the loan outstanding, then there remains a
residual debt owed by you. This debt isn't automatically "bad", it
only becomes bad if all methods to extract the dosh (stopping short of
the breaking of limbs but not necessarily of commencing bankruptcy
proceedings) turn out to be fruitless.
 
J

John Boyle

Ronald said:
No that's jolly well not it. If your mortgagee repossesses your house
and sells it for less than the loan outstanding, then there remains a
residual debt owed by you. This debt isn't automatically "bad", it
only becomes bad if all methods to extract the dosh (stopping short of
the breaking of limbs but not necessarily of commencing bankruptcy
proceedings) turn out to be fruitless.
And the only avenue would appear to be a charging order on the new
house. If the terms of the original loan were properly drawn, how do you
think that could be achieved?
 
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R

Ronald Raygun

John said:
And the only avenue would appear to be a charging order on the new
house. If the terms of the original loan were properly drawn, how do you
think that could be achieved?
I think we may be at cross-purposes here.

If he lends his sister money, then she owes it him back irrespective
of whether it's secured. He's not bothered about losing money so long
as it stays in the family, i.e. he doesn't want any of it to leak out
by way of IHT.

If he simply forgives the loan, this is turning it into a gift which
runs the risk, should he fail to survive for 7 years, of the gift
contributing to an increase in his estate's IHT bill.

You seem to be saying that it's possible for him to "let" her keep
the money without it counting as a gift, namely by writing the loan
off as bad debt. That's a clever tax avoidance move, but I don't see
how selling an asset on which the loan is secured, for less than is
necessary to repay the loan, is sufficient evidence to make the
balance of the loan immediately a bad debt.

The debt still exists and is still enforceable by court action. After
all, she may have other assets which could be seized. And if she
hasn't any at the time, she might well acquire some during the 6 year
waiting time before the debt becomes unenforceable. Surely it
cannot become "bad" until it's legally unenforceable.

Of course he would not actually wish to take his sister to court, but
declining to do so could amount to a negligent lack of probity, i.e.
it would be a case of deliberately depriving himself and hence his
estate of funds. In other words, it would still be a gift.

Also if he has to wait 6 years, he's only buying one year relative
to waiting 7 years for the gift to become non-taxable.
 

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