My daughters want to pay off my BTL mortgage

Are our plans permissible or a good Tax option? Can anyone please suggest better alternatives?

Didn't find your answer?

I own a BTL solely in my own name. It's valued at £255,000. I have an interest only BTL mortgage for £134,000 which ends in May 2026. When my current BTL mortgage ends, I intend to pay off £74,000 with money from the sale of another BTL and my daughters want to invest £60,000 (£30,000 each), instead of me remortgaging. The property will then be owned outright. They are 30 and 26, both basic rate Tax Payers with their own homes and with personal mortgages.

Their £30,000 each is coming from their Grandma. A cash gift after selling some family land earlier this year. For income tax purposes I was going to add the them to the deeds as Tennants in common with myself at 99% and them at 0.05% each. They don't want any rent/profit, but I do, because as of 2026 this rent will be my only source of income other than savings, therefore, don't see putting it in a trust at this moment in time an option. I will declare 100% of all earnings on my SA Tax return. The total rent will be under the basic rate tax allowance £12,570.00.
This property has already been left to them solely in my will 50/50. By then, I will own no other properties other than the family home with my husband. We have already put this into Protective Property Trust as I have step children.

Is the above, a viable Tax option or am I missing something? Any advice would be greatly appreciated. Thank you

 

 

 

Replies (15)

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By Ruddles
29th Oct 2023 10:44

Wrong place for a question like this.

This forum is no substitute for sitting down with your family, financial adviser and tax adviser to have a full and frank discussion about facts and intentions.

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Replying to Ruddles:
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By DCoe
29th Oct 2023 13:30

Thank you x

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By Londonacc
29th Oct 2023 10:48

Probably not the answer you want but I would definitely spend the money on a financial advisor rather than taking advice from an internet forum.

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By DCoe
29th Oct 2023 13:31

Thank you x

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By Leywood
29th Oct 2023 10:54
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Replying to Leywood:
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By David Ex
29th Oct 2023 12:31

Leywood wrote:

Expecting a lot of tax and other advice there for nothing.

It’s the idea that we’re going to sit and pore over the large amount of detail to make sure the free advice is just right.

Why do people have such a low opinion of the accounting profession?

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Replying to David Ex:
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By DCoe
29th Oct 2023 13:32

Thank you for your reply. I certainly didn’t mean to offend nor do I have a low opinion of people in your profession. I’ve ask my question be deleted from the forum.

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Replying to Leywood:
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By DCoe
29th Oct 2023 13:34

I appreciate your comment. I included lots of info as others I read, said not enough information had been given to be able to comment. I’ll certainly seek paid advice. Thank you

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By Tax Dragon
29th Oct 2023 14:09

What's the logic of your daughters having any share in the property? Why don't they just give you £30k each?

I'm not saying that's what should happen, I'm saying that's pretty much what is happening anyway so what is the logic of your proposal? What in your head are you - or your daughters, or all of you - gaining?

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Replying to Tax Dragon:
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By DCoe
29th Oct 2023 14:26

Thank you for you for responding and its a good question.
The reason for them being added to the deeds and not gifting me their 30K is so their money is protected and doesn't enter my estate and wouldn't be subject to IHT should I die. It also reduces my personal wealth should I become ill and require long term care. Fortunately I'm of good health at the mo!
I maybe wrong but this is my understanding anyway.

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Replying to DCoe:
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By More unearned luck
29th Oct 2023 15:57

I think that your daughters should take independent financial advice as paying £60,000 for a share that is worth less than £250 doesn't sound like a good investment to me. Nor does it achieve the IHT benefits/ deprivation of assets benefit you say it does. The proposed transaction makes you c £59,750 richer than you were. Wealth that could be subject to IHT or used pay for your care. As a general rule wealth should flow down the generations not up them.

Fortunately most of your gain of almost £60k won't be subject to CGT because you are connected to your daughters. You will have a smaller gain for CGT purposes based on the MV of a 0.1% share.

99 + (0.05 x 2) = 99.1.

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Replying to More unearned luck:
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By DJKL
30th Oct 2023 11:54

Re daughters and their CGT they may be better inheriting on OP's death as they will get the CGT valuation uplift to that date and they certainly seem to get little benefit whilst he/she is alive for the £60k they are "investing/lending"

If IHT is on point then a loan from them to you for £60,000 would certainly reduce OP's estate by the sum borrowed, might that work?

This is really the typical client meeting where the client comes to the accountant with his/her pet idea and the only way to deal with it is to step back, look at everything (entire estate/family situation inc IHT,CGT, IT etc )and determine what client wants to actually achieve (Pass value/raise funding etc) and then disabuse him/her of their pet plan and write them something that achieves their purpose more effectively.

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Replying to DCoe:
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By Bobbo
30th Oct 2023 11:55

DCoe wrote:

Thank you for you for responding and its a good question.
The reason for them being added to the deeds and not gifting me their 30K is so their money is protected and doesn't enter my estate and wouldn't be subject to IHT should I die. It also reduces my personal wealth should I become ill and require long term care. Fortunately I'm of good health at the mo!
I maybe wrong but this is my understanding anyway.

Not an expert in IHT, but i'd venture pretty much every part of this is wrong.

Is the actual intention that your daughters are *lending* you £30,000 each, which you will use to clear the outstanding mortgage on the BTL property? I.e. you will owe them this money back? Such loan(s) possibly recorded by charge(s) on the property.

If so, then it's unclear that's what you mean and this whole "For income tax purposes I was going to add the them to the deeds as Tennants in common with myself at 99% and them at 0.05% each." confuses matters.

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By Postingcomments
30th Oct 2023 11:04

You've at least had the decency to put a certain amount of effort into your question. But, with respect, I'm on my coffee break. When I'm done, I go back to doing my fee paying work.

You know - answering clients' questions in return for fees.

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By Dp2020
01st Nov 2023 10:50

It sounds like they aren't "investing " as only receiving a tiny part of asset but rather gifting you and increasing your IHT estate.

What is the mortgage rate? What might they achieve as a return on £30k elsewhere?

Complex question need proper advice

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