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Original poster

Is this legal? What are the implications for the future if I agree? WWYD

59 replies

ChickenWoman · 29/01/2010 18:06

Dad wants to sell me his house. He'll put the money for a diposit in my account and then I'll buy it. 2 weeks I'll sell it back to him for the same price and he'll pay me the money and then I'll give it back to him.

I 'think' this is legal, but would the deposit money and then the sale money be seen as 'income' and impact on my carers allowance?

Appreciate any help/advice! I'd like to help if I can.

OP posts:
hobbgoblin · 29/01/2010 18:09

Ehhhhh???

What is the point of this exactly? Plus, there is a max figure for 'gifting' per annum and I think it is around a grand. After that there are tax implications not to mention the effect on any state benefit it would have.

Blu · 29/01/2010 18:10

Why on earth does he want to do this?
If its over the threshold for stamp duty, it will have to be paid twice, and each time you will have to pay land registry fees, conveyancing - you won't be bothering with surveys, searches etc, but there will still be fees - you can't just do this privately betyween the two of you if it is a proper sale.

Is this a money-laundering excercise or something?

butadream · 29/01/2010 18:10

I don't understand the plan here, is he trying to give you money?

Can you use some example figures to explain it please, is this the plan:
House costs £100k
Dad puts £30k in your account.
You get mortgage for £70k.
You pay Dad £100k.

Then...
Dad buys back house for, say, £120k, leaving you £20k better off?

Is that it?

fridayschild · 29/01/2010 18:11

Why does he want to do this?

It will cost you a lot of money if you are doing it properly - legals, mortage reservation fee, stamp duty land tax, land registry fees - and if you are not doing it properly why would you do it regardless of the reason for doing it?

I am a property lawyer and if you came to me for this I would start wondering about money laundering.

Blu · 29/01/2010 18:13

Mortgage arrangement fee...(if there is a mortgage they will INSIST on a survey, if only to value it), mortgage redemption fee....you will have to take out buildings insurance in your name then cancel it (a mortgage co would insist, and the risk were it to be burned to the grouns while in your position too great not to do this).

This sounds quite mad, tbh.

Thistledew · 29/01/2010 18:14

Why do you want to do this? Sorry if I have mis-understood, but it seems that you want to buy your dad's house simply for the purpose of selling it back to him.

For the time the money is in your account, it will count as capital, so will affect any means-tested benefits you have, but not any that are not mans-tested.

You will also lose a lot of money by paying stamp duty, land registry fees, search fees, solicitors fees etc.

hobbgoblin · 29/01/2010 18:14

I just don't understand it when you get to the part where you sell it back to him.

I sort of get him giving you the cash so you can buy the house - a bit like him buying it from himself in effect. Weird, but I get it.

Is it to avoid inheritance tax?

But then why would you sell it back?! at the same price?!!! thus defeating the object of the whole exercise surely?

Original poster
ChickenWoman · 29/01/2010 18:14

Something to do with his plans to build an extension before selling. He will be liable for capital gains or something, the difference between what he bought it for and what he sold if for plus extension. Plus he and mum would be selling it and only he would be buying back.It is their second home (but only because they don't live together, not for land-lord, holiday home reasons.

I'm not exactly sure of the details though and my life is such that I can't dedicate any time to researching.He wants to go to a solicitor on the next week before the planning permission runs out.

OP posts:
Original poster
ChickenWoman · 29/01/2010 18:15

'I don't understand the plan here, is he trying to give you money?'

Nope. He's not mentioned that.

OP posts:
ruddynorah · 29/01/2010 18:17

so you don't know.

find out. then ask us

fridayschild · 29/01/2010 18:17

If you look into the actual capital gains tax payable, I think the costs of the transfer to you and back will be about the same or less. You're going to have to go through the whole palava in case the Revenue investigate, so it will be expensive.

This sounds like a lot of hassle to me. If you have a busy life I would walk away from it.

Mongolia · 29/01/2010 18:17

What for?

Do you realise that that will count as if you had an annual income of £1000s over your income and you will be taxed accordingly for that? That a lot of money to pay.

If you are getting any benefits (like carers allowance) be sure that they will be wipped of by that.

I understand him doing that to avoid inheritance tax or reduce the amount to be paid when he is gone, but the fact that you are selling the house back to him makes me thinnk that perhaps there is something to be careful with behind his plan.

Original poster
ChickenWoman · 29/01/2010 18:20

'Is this a money-laundering excercise or something?'

No it is to avoid capital gains in the long run. He says the mortgage would be a private one between us so no evaluation or survey needed provided he does a HIP pack thingy.

Does it sound dodgy?

I don't mind doing the favour but I don't want it to screw me up financially or limit my options and I certainly don't want it to bite me or my family on the bottom later.

OP posts:
hobbgoblin · 29/01/2010 18:21

Surely what little he may/may not save he would be offering you by way of thanks for the stress, involvement, possible tax implications and loss of benefit anyway so ask him is your 'fee' really worth the saving...?

EldonAve · 29/01/2010 18:22

if it's his primary residence and you are in the UK he won't have to pay capital gains

butadream · 29/01/2010 18:24

No, this is really complicated and I can't see why you should get involved, it looks dodgy.

Your dad should go to see a solicitor pronto.

When you say your parents are separated, is this a legal separation?

If it is I think that he should check if they can each claim principal residence for capital gains purposes, i.e. Mum on their 1st house, Dad on the 2nd one that he lives in. But this will depend on their legal status and also I suspect on how long they have lived in each home.

Your dad needs to check it out fully and not rope you into a half baked scheme involving ridiculous associated costs.

Original poster
ChickenWoman · 29/01/2010 18:26

okay - figures.

He gives me £20k which I put down as deposit and arrange private mortgage for £150 with him.

I sell it back to him for £150k two weeks later and he puts down a £20k deposit which I give back to him.

I suppose that my bank account will see and lose two lots of £20k in 2 weeks.

I won't need insurance will I?

It sounds so straightforward they way he puts it. I'm certain it isn't illegal, but I'm not so sure how much of a mess it will make of my finances etc.

OP posts:
Mongolia · 29/01/2010 18:26

Yes, it does sound dodgy. I don't see how you can have a "private mortgage" between you. IS he trying to trick someone into believing he doesn't own a house or that his capital is way below to what it it?

Do you want to participate on this putting your financial situation at a considerable risk? Unless you want to get a house for free, there is no benefit for you in this but a very high risk.

butadream · 29/01/2010 18:27

So depending on the separation status I think it might be possible for your Dad to do this:

Dad transfers his share of 1st house to Mum - no capital gains between spouses (if they are not separated yet)

Parents legally separate

Mum has 1st house as primary residence - no capital gains tax on sale

Dad has 2nd house as primary residence - same

BUT BUT BUT he needs to check this out!!!!!

Original poster
ChickenWoman · 29/01/2010 18:27

No it is his and my mums second joint home. They have been seperated for 20 years. They go on holiday together. There is no dodginess between them. My mum is also putting pressure on me to do it.

OP posts:
Blu · 29/01/2010 18:27

But if it is his principle residence he wouldn't be liable fo CGT anyway - all he would need to do, I think, is live in it befopre sale? But not sure about that.

If i were you I would insist that you and he visit a solicitor TOGETHER and go through the iplications of this - and even a solicitor may not know the ins and outs of how it will effect your own financial situation.

In any case, presumably the IR could investigate and decide it is an evasion measure?

Would he put all the cost of the houe in your account? You said just a deposit.

fridayschild · 29/01/2010 18:28

Capital gains - you get the first £10,100 tax free, and then you pay 18% on the rest. At the moment it's one of the most tax-efficient ways to get your money. So he has to make a lot of money on this extension before he pays any serious tax.

And don't forget stamp duty land tax. As others have said you have to pay that on both transfers if the property is worth more than £125k.

If the property is worth £150k, the SDLT from dad to you and you to dad is £3k. Say another £200 for land registry fees.

If the increase in value as a result of the extension is £25k to £175k, the CGT is less - £2610.

Maybe the costs of the extension could be used to offset the future tax bill? I don't know enough about tax to be sure of that.

butadream · 29/01/2010 18:30

Your parents need to get advice together I think even though they are separated and you should stay well out of this.

Mongolia · 29/01/2010 18:30

Are your parents getting divorced??? if so, here's what he is trying to do:

By selling the house to you he doesn't have to give your mum the part of the money/house that belongs to her.

Mongolia · 29/01/2010 18:33

And, if everything goes to plan, your mum may be even forced to sell the other house to pay him his percentage.

However, I would only think this if they have been naive enough not to use a solicitor, because if they have used it they will know that a separation of assets takes way longer than 2 weeks.