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Purchase of property for daughter

Daughter can't get mortgage so mother purchasing property. How to avoid tax on capital repayments?

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Daughter has split up with partner and looking to purchase a property.

However, this is not achieveable so the mother will be obtaining a mortgage to purchase a property for the daughter.

The daughter will be paying the mortgage repayments. 

Presumably paying down the capital will in effect be rent so mother will end up paying tax.  

How can it be structured to avoid the tax?  

 

Replies (6)

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By David Ex
16th Sep 2021 15:23

A mortgage broker might be able to find a mortgage lender who will lend to the daughter but with the support of a guarantee from the mother.

If the mother takes out a mortgage by misrepresenting herself as the intended occupier, you've got an issue. Ditto if the lender isn't told that the property is effectively being let.

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Jason Croke
By Jason Croke
16th Sep 2021 15:39

If mother is on the deeds, which presumably she will be if the mortgage is in her name, then there would also be the 3% SDLT surcharge rules to consider.

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By Justin Bryant
16th Sep 2021 15:40

Let them be gifts.

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By Paul Crowley
16th Sep 2021 15:50

Find the right lender with Mum as guarantor
Anything else will be a headache

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By kaff
16th Sep 2021 19:37

Joint borrower sole proprietor mortgage, with daughter on the deeds and mum agreeing in writing to have no beneficial interest. Should get round the extra SDLT?

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By Tax Dragon
17th Sep 2021 07:25

The question seems to be how can mum (legally and beneficially) own the property, daughter pay to live in the property, mum not pay tax on the rents.

Answers (Justin's aside, which anyway you can ignore) all translate to "don't do it". Frankly that's ridiculous. If mum wants beneficial ownership, mum should have beneficial ownership. It does mean that her rental income will be taxable, but so should it be.

Now, if the question is about providing daughter with her own property with mum merely underwriting the transactions (but not having a beneficial interest in the property), then the answers are bang on and it's the question that's screwy.

FWIW, I'd add that, if mum is the legal owner and daughter the beneficial owner, then what you have is a trust. If the mortgage provider is aware of the trust and advances the loan in full knowledge of all the facts, then the trust is probably bare (though this obviously does depend on who is entitled to what). If the lender is not aware, then it gets more murky - there's potentially either mortgage fraud or arguably the trust is not bare. Whichever, in my view that would be a situation to avoid (I'd sign up to the "don't do it" answers) - at the least, it puts you as advisor (if so you be) in a difficult position, one that you probably don't want to be in and don't want to be advising about.

In short: find out what they actually intend (who would own the property in an ideal world). If it's mum owns, then let her pay tax on the rents. If it's daughter owns, then have mum as guarantor per David and Paul, or kaff's suggestion (agreed with the lender) also 'works'. (Or indeed so does a bare trust with mum as sole trustee, if that's agreed with the lender. Though it's a weird lender won't lend to the daughter but will knowingly lend to a bare trust for the daughter.)

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