Two years ago, my parents effectively borrowed £200,000 against their property so that my husband and I could buy a flat, with the intention of doing this until we are in a position to get our own mortgage. However, the property is officially in my parents' names. We assumed they could just sign it over to us when we were able and ready with our own £200,000 mortgage. However, we've recently heard about capital gains tax. My husband and I have been paying back the whole mortgage amount via my parents and funding any repairs and maintenance (new boiler, decorating etc.), and on top of the repairs we've funded the market value has risen significantly. We do not want to sell the property and plan to stay living here, but the flat needs significant and urgent improvement (a new roof and exterior repairs costing £7-10,000) and we wish to do a loft conversion, both of which we would pay for, raising the value even further. We don't think there should be capital gains tax (CGT) issues as it is our first home and my parents will not profit from helping us. Should my parents have just had it in our names from the beginning? Do we have any options?
Arthur Weller replies:
Yes, your parents should have put it in your names from the beginning. When they transfer to you there will be CGT based on the difference between its market value on the date of the transfer, and what they originally paid for it. Additionally, if you take over responsibility for their mortgage, or if you pay off their mortgage, there will be stamp duty land tax for you to pay. However, it may be worth you speaking to a tax adviser, because (depending on the facts of the case) it could be that your parents were simply no more than legal owners, or nominees, or bare trustees, and you had the beneficial ownership in the property from the beginning - see www.gov.uk/hmrcinternal-manuals/capital-gains-manual/cg70230 and www.gov.uk/hmrc-internal-manuals/capital-gainsmanual/cg65415 and subsequent pages there.