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

[ChickenWoman]

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.

No they are not getting divorced. They are celebrating their Golden wedding anniversary in a couple of years. They are just seperated, not divorced. They'll never get divorced.

yes, you would need insurance! Or else your dad nes to understand that the property would be completely uninsured for the time it 'belonged' to you.

Actually, I don't think a solicitor will see you both as they can only act fo one party - seeing you with your prospectiv 'vendor' would be a conflict of interest.

Get him to pay for you to see an accountant and solicitor of your own.

If the IR investigated, they would see that only £20k had ver changed hands - when you get a 'real'mortgage, the whole amount goes thorugh your solicitors account and then to the vendors solicitor...in your case only £20k changes hands - so they would immdiately spot it as a CGT evasion dodge!

erm, - maybve it isn't gold, - it's a big one anyway - 40 years

I see.. then, that is not the problem...

I'm out of ideas then...

Are you sure there's no one new in the horizon?

If they are married, surely they both have a joint claim on the house, joint liability, never mind whose name is on the deeds.

Does you mum know about this cunning scheme? It just sounds odd that she part owns it to start with but not after the exchanges.

It sounds very dodgy to me, and your dad is putting you in a very awkward situation. If it is solely to avoid tax, then it is very likely that he will get caught out anyway, as they have been pretty good at finding and closing any loopholes, i.e. even if your dad is technically not liable to pay tax, because he gets the capital gain on the property in two parts, if the revenue reasonably suspect that he's done something solely to avoid paying the tax, then they will almost certainly say he has to pay it anyway. The revenue aren't actually as stupid as people would seem to like to think they are...

Not if the property is transfered to an adult relative.

LOL, - no I promise you there is no-one new. Some things ARE straightforward and my parents asset seperation will take more than 2 years, let alone 2 weeks. They are so tied together.

Inland Revenue will take a very dim view of this.

I would seriously advise you not do this unless you understand the implications absolutely.

It's a capital gains tax avoidance scam

Which incidentally doesn't work, for all sorts of reasons

I don't think this will affect your income - this is clearly a capital transaction

But I would advise you and your dad to see an accountant rather than a solicitor who can sit your dad down and explain the connected party rules which means this doesn't give him a step up in base cost

No I really don't understand the implications.

My Dad thinks that the tax will only be a result of not having set things up in an optimal way at the start. This is his attempt to re-set things and I'm quite certain it isn't illegal.

I would like to do it, but this thread shows that it is more complicated perhaps than I am able to understand at present. I have a court appearance coming up (I'm suing) and it is taken every minute of my waking hour to prepare. I just don't have a spare Saturday to sit in a solicitors office, whoever pays.

For your Dad to be paying capital gains on this house must mean that he hasn't always lived in it, but rented it out.

Otherwise there is a principal private residence relief, which means that houses you've always lived in are not subject to capital gains

Okay Quatro. This thing falls down because I am a connected party?

Quatro, just the main one is not subject to capital gain tax, any other properties are.

He's never rented the house, although he can't seem to make up his mind whether he lives there or with my mum. However his work has always been there and his car has always been registered there, - for 20 years.

The extention he plans to build is in fact another house, which he will move into (thereby owning 3 houses, 2 jointly with my mum). He will them sell the one he currently lives in. Could that be what is making him ask this of me?

I think so, I'd have to check the law but connected parties usually include siblings, trusts in some circs, ancestors and lineal descendents.

Even if the connected party rules don't bite (and I think they do) there are rules about shams and when contractual terms can be effectively set aside

Mongolia - yes that's right - that's what I was trying to say

...and, because the parents are married, even if they live in separate houses, only ONE counts as the main one.

which may not be relevant to this discussion anyway

They have both names on both.

I suppose what really concerns the OP is how this affects her

I'm sure it doesn't affect her income position, because it's a capital transaction

But it could affect you adversely if it is found to be so shammish that it's effectively fraud on the revenue

So you need to be sure that it is entirely legitimate and disclosed in full to HMRC if you do go ahead

Because you really don't want to face an HMRC investigation.

That's an idea Quattro. I could suggest he shows me evidence that he has informed him of the full scheme. Then I can be certain that it isn't illegal, dodgy or going to turn my life upside down in the future.

If he refuses then there must be something dodgy that he is trying to hide that could have repercussions for me.

Is this a sensible thing to do?

informs HRMC

If it's to avoid CGT, I'm not sure it will help anyway -

according to the HMRC website:

"If you sell, give or otherwise dispose of a property (that's not your main home) to any other family member - or to a spouse or civil partner that you haven't lived with during that tax year - you'll have to work out the gain or loss made and any Capital Gains Tax due."

I can't see how his scheme helps him in the long run. If he buys the property back from you at the same price, the gain from the extension would be the same as if he continues to own it?

OK. So lets assume that it cost £50K, he and your mum own it jointly. If the market value now (pre extension) is £150k, he and your mum would pay CGT on their gain when he sells it to you. £50k gain each, knock of the annual exemption (say £10k) £40k each taxed at 18% = 7.2k each. In tax to pay at 31 Jan 2011.

Then he buys back, presumably the market value hasn't gone up, then he goes extension, makes (say) £50k gain, and pays tax on that gain (say next year, due 31 Jan 2012)

This isn't really achieving much. It may divide the gain in to two tax years, saving £1800 by using two allowances, but the SDLT on both transfers cancels that out. If there is any intention not to pay SDLT, then whatever he hopes to achieve won't work. If £150k is not the real market value, then because you are connected, the transactions will be deemed to take place at market value.

If what he want to be able to do is not tell HMRC about the sale to you, and then claim the buy back as his base cost, this is fraud, and is likely to be picked up.

For this amount of tax, any scheme that worked would not be worth it in accountants and solicitors fees to check that it does. If you don't see advice from a solicitor or accountant explaining excatly why it works and putting numbers in, don't do it. If you do see one, check it out with us!