Can any legal gurus explain why this has got so complicated?

We are buying a house from my partners (we are not married) father. He has sold us the house for approx 50K less than it is worth. We are taking a mortgage for the balance and we are not putting any cash into the deal due to our LTV being about 80%

His solicitors are really stirring things up for some reason, someone has even suggested he may be liable for some fees or charges?

Help!

Stamp Duty shortfall & possible Capital Gains Tax avoidance?

I think that there may be an inheritance tax liability if he dies within 7 years, but ianal or tax advisor.

I think the shortfall in market value is regarded as a gift

We’ve had advice to say stamp duty is calculated on the price not the value of the property besides i think we would be liable for that.

Does capital gains tax apply? He built the house himself on land he already owned, we think that he remortgaged another property to finance the build.

But its only 50k so I don’t think inheritance tax comes into it.

IHT is obviously only a factor if the whole estate is over the threshold.

Were he to be bankrupted within the next 7 (IIRC) years, his creditors would have the right to go after you for the gift. Not sure what his solicitors are interested in.

CGT will apply if it’s not his primary residence (and mortgaging another property to fund it suggests that might be the case)

In the transfer deed you will state that the consideration for the property is what the mortgage co have stated but that it comprises x% as cash and y% as a gift (i.e. if the mortgage co state the pp as 100,000 then the cash element would 80,000 anf the gift element would be 20,000) – you will only pay stamp duty on the cash element.

Your fil will need to complete a declaration of solvency as the transaction is at undervalue (and as such could be set aside) and you will need to obtain a policy of defective title insurance to cover fil’s possible insolvency – your mortgage co will want this – premium depends on amount of loan = could be a couple of 100.

If the property was not and has never been fil’s principle private residence the there will be a potential charge to cgt – fil could transfer a half share to mil to claim two cgt allowances (11,000 each), assuming there is a mil to help offset any gain – cgt would be payable on the total of the cash and gift elements. If the house has been in the past fil’s ppr then he may still claim some ppr relief and likewise if the house was subsequently let – you would also knock off the last 18 months of ownership

fil’s estate may be subject to iht on the gift element only if he doesn’t survive the 7 year (known as a failed potentially exempt transfer)and this would be in addition to any cgt paid so an element of double taxation.

This is a very common scenario so not sure why your conveyancer is getting upset.

Cheers, I guess that CGT explains the fees they are looking at.

There should be no fees paid by fil any cgt is up to him to declare – sounds like you are being fleeced if they are saying otherwise.

Thanks Nipper99 and god bless STW!

To be honest both sets of solicitors are acting like we are buying a small country. Its been going on for six weeks now.

To be honest both sets of solicitors are acting like we are buying a small country. Its been going on for six weeks now.

Welcome to the land of legal!

I bet you thought it would be easy 😉

Hmmm, my mother has just made a SIGNIFICANT contribution to the purchase of our first house (50%), as long as she lives for over 7 years its not an issue.

My parents transferred a property to myself and my brother last year. We had to get it officially valued at today’s price and also when they bought it and then pay Capital Gains Tax on the rise in value over the time my parents had owned it.