I have not dealt with the sale of a rental property to a family member before and I am just curious as to whether there are any rules I need to be aware of in this situation.
Father has rented a property to his son for around 5 years. The son would now like to buy the property but can not currently get a mortgage to buy the whole house. So the son is going to buy 25% of the property next month, and then hopes to buy the remaining 75% within 5 years.
How do you account for CGT in this scenario? Would you account for the gain on 25% of the property now then then remaining 75% when the full sale goes through? Claiming PPR where appropriate.
The house is to be sold at market value so I don't there are any rules re selling to a related party which affect this?
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How
Are you going to claim PPR? It would need to be/have been the father's PPR.
But yes, if it is done at market value you have a 25% disposal now and a 75% disposal later.
Yes will claim PPR, House has been owned approx 30 years with father living there for around 25 years then renting to son for last 5 years.
I wasn't sure if there would be any issue with the rent. From next month no rent will be paid to the father, but will HMRC still view that the father should receive 75% of the rental income until the property is fully transferred to the son, or am I just over thinking this?
Rent could be a problem
If no rent is paid for the 75% the father still owns, the substance of the transaction will look like 100% disposal with 75% deferred consideration. Can the son pay the mortgage and the 75% rent at the same time?
The father is just wanting to free up some cash and this is the reason for the sale to the son. There is currently no mortgage on the property so the father is happy for the son to pay him 25% of the purchase price now and the rest as soon as this becomes possible. Once the son has paid the 25% the property will be his in the fathers eyes, so the father does not want him to carry on paying rent.
When the 25% is paid the sons name will be put on the deeds/land reg along with the fathers, the fathers name will be removed once the balance is paid.
Would it be best to treat the sale next month as been 100% sale for CGT purposes and to avoid any issues with the rent?
Deferred consideration would work
Essentially meaning son is paying the father a 'mortgage' on drip and in 5 years time may be able to refinance and pay off the remaining element.
Also would avoid any confusion or complications with calculating gains and allocating PPR etc if/when the property increases in value