- April 9, 2024
- Posted by: legaleseblogger
- Category: Related News
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**Friend’s Dilemma:**
My friend has been renting his house for about 4 years, and loved next to a lovely gentleman who has no one left in his life. The two really bonded and the elderly man has just received some pretty damning health news. He probably won’t live out the summer.
**Potential Opportunity:**
The man has offered to sell his home for 50k to my friend. Which is his entire savings. The house is worth around 600k in a really nice part of the country.
**Concerns and Considerations:**
The man owns the house outright, and my friend can definitely afford the council tax. Is there anything or anyone that might get in the way of this transaction? He understands if/when he sells in the future he will get hit with some major taxes but that seems better than paying an extortionate mortgage on a property he can’t afford.
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****** just grabbed a
Does the man need the 50k in his remaining few months, or could he simply leave the house to your friend in his will? This would be the more usual way to do it.
I don’t really understand why he would spend his remaining time, in deteriorating health, trying to sell and move house – to where?
So your friend *may* be subject to some tax implications.
The first consideration is inheritance taxes. If you sell a property below market value and pass away within seven years, the value of the property may still be subject to inheritance taxes. The difference between the market value at the time of the transfer and the actual sale price could be considered a gift, and potentially be subject to inheritance taxes if the estate’s value exceeds the current threshold tax.
~~Additionally if you buy the property at below market price, you may be required to pay Stamp Duty based on the property’s market value, even if you purchased it at a lower price.~~
I’d really advise him to consult a solicitor.
**EDIT:** The solicitor will tell you that your friend and their neighbour should get a will sorted our rather than going down this route.
Deliberate deprivation of assets could be an issue if there are care fees to consider. If there any debts associated to assets could also get messy. Best to consult a solicitor to discuss and may be easier to will the property to your friend unless the £50k is needed for any purpose.
One practical question is what the older guy will do and where he’ll live after selling the house. It’s worth noting that medical prognoses can be inexact – for lots of illnesses, there’s a reasonable % live well beyond the prognosis
>He understands if/when he sells in the future he will get hit with some major taxes
Sure, but does the *seller* realise what his tax position is going to be?
Will it to him. No need to go through the stress of selling
Is he certain there is no relatives? This neighbour could sell/gift/leave the property to your friend, and then, once he passes your friend may be involved in a legal battle with the neighbours relatives.
As it seems he was married he should have double the IHT allowance, presuming his wife also didn’t use her allowance so would have £650k which is more than the house price so potentially that won’t be an issue, but I’ve just casually read it, not an expert so be good if someone else can chime in.
Inheritance tax will be a bitch. He is in effect being gifted £550k, if the guy dies within 7 years (which sounds likely) then your friend will be on the hook for the tax.
The current threshold is £325k.
You pay inheritance tax at 40% on anything above that.
So assuming the guy has no other assets
(550k-325k)×0.4=90k.
That’s a lot to find down the back of the couch when the tax man comes calling.
If he sells the house at below face value it will appear as if you are trying to avoid inheritance tax.
Incidentally, the inheritance tax due on that property is £110k for a non-relative. He’d pretty much have to sell it – but you’ve still made £500k…
sounds like your friend shouldn’t be getting involved … he should be given the house in the gentlemen’s will or whatever is left over … or he could be in for a very big legal case if the guy does have family in the background.
Inheritance tax is due on the entire estate, not by component, so if your friend was left the house in the will he may not end up having to pay as there might be enough other assets to cover the total amount needed. An executor would not sell the house to pay the tax unless there was no other way to meet the demands of the will. If he receives the house as a gift before death he would become liable directly.
It would be highly advantageous for your friend and his neighbour to marry, by the way – I’m assuming that’s not an option.
If the neighbour passes away within 7 years there will be a tax to be paid on the property
He should ask the man to leave it via will instead, then remortgage to pay the ~90k tax that will be due, or use some of the 50k savings to reduce the mortgage size. 90k mortgage almost certainly less than rent so depending on rates I’d keep the savings.
Inheritance tax is the obvious one. If the old guy dies within seven years of selling the property below the market value, the value of the gift (market value – what he paid for it) will be subject to inheritance tax.
If the old guy continues to live in the house after it has been sold, he would either have to pay a fair market rent or expect to be subject to pre-owned assets tax.
If the issue is that the old guy would like the £50K to use before he dies and wants to live in the house until he dies, your mate could buy an interest in the property with the £50K. It might be possible for your mate and the old guy to own the property as Joint Tenants, meaning that both of them own the property and if one of them dies, the other would own all of it (assuming there’s no mortgage). But IANAL, your mate should speak with a solicitor with expertise in property and tax law.
He understands if/when he sells in the future he will get hit with some major taxes but that seems better than paying an extortionate mortgage on a property he can’t afford.
Once the transfer has happened, as long as he is selling his main residence, then this is exempt from CG tax.
Not sure of the rules/thresholds regarding IHT.
if the old man is going to die by the summer, what does he need the life savings for
he could simply leave it in his will and chill out and let others deal with it
had a will sorted in about a week
Assuming he uses it as personal residence then there won’t even be massive tax to pay when he sells.
Possibly the only thing standing in his way is his own moral compass and duty of care. Is the neighbour really compos mentis given his recent news?
One potential reason to sell now might be to avoid care fees/obtain local support funding. I’m not sure what the rules are there.
Leaving it until he dies means your friend has to find the money to pay the tax before he can get his hands on the house i.e. before he can get a mortgage (or making getting a mortgage pretty painful).
Assuming he doesn’t have to pay the gift tax until the old man dies, and gets the full amount from inheritance, it’d probably make sense to sell now, for as little as possible for your friend.
That is going to raise a few red flags.
– Stamp Duty Land Tax (SDLT): For substantially undervalued transactions, HMRC may assess SDLT on the market value of the property, not the transaction value. If he is a first time buyer, and the property is worth £600k, then he would owe, £8,750 or £17,500 otherwise.
– Gift with Reservation of Benefit: If the elderly gentleman continues to live in the property after the sale, it might be considered a ‘gift with reservation of benefit’, which can have inheritance tax implications.
– Market Value Transaction: Selling significantly below market value could raise suspicions of a non-arm’s length transaction, potentially inviting scrutiny from various authorities to ensure there is no fraud or financial abuse taking place.
– Local Authority: If the seller is receiving care funded by the local authority, the sale could be seen as deprivation of assets, affecting his eligibility for funding.
CGT tax in the future would only be an issue if it wasn’t your primary residence, as far as I know.
He needs to live somewhere for the next 6 months (could even be 1 year).
He should not sell it.
Also, if he needs social care such as carers coming to the house, or him going into a care home, then you cannot simply give away your house for a fraction of its value – it’s deliberate deprivation of assets. The council would go after your friend to recover the money council are owed.
Instead, the man needs to make a will and leave his house (or his entire estate) to your friend. It’s much simpler and safer for all concerned.
Tell your friend to watch out for bitter relatives coming out of the woodwork like a bad soap opera episode.
My understanding is its a gift so 500k minus the 50k would be 450k liable for inheritance tax which would be 450 – 325 allowance = 125k * .4 = 50k
So your friend would pay 50k now and 50k after death not covering risk of distant relatives disputing arrangement
500k house should be easy enough to get a 50k mortgage which would likely be lower than the rent being paid now put that in savings and don’t spend it.
Only other potential risk is house price rise, though if its worth 500k on right move you probably can get a valuation at auction price lower thus reducing tax burden.
I’d say the elderly guy is looking payment to transfer deeds etc legally “proof of sale” through solicitors,
U will more than likely find that when this man passes, he will leave a nice fortune in his will
Your friend needs a lawyer. Reddit is no substitute for the minefield he is about to jump into.
Selling to avoid care home fees is a pretty sketchy idea. The council may well decide it’s worth pursing, if the house is not sold for value. It’s sort of on the border of fraudulent, and could be described as hiding assets?
It’s a dodgy legal basis, and your friend would be fairly lucky to get out of it with zero issues.
This is the wrong place for advice. Post in r/LegalAdviceUK
They need to get married/civil partnership. ASAP. A lot of inheritance and selling below market value issues will go away.
are you SURE it’s not a scam… I mean your friend…
He would have to pay tax on the difference I believe as it would be a taxable benefit.
What’s the elderly man going to do with the 50k? 🤨
The main issue here is stamp duty. You friend has 50k. The stamp duty bill on a 600k property (for a FTB?) is £8750. Plus solicitors, call it 10k.
So he really only has 40k to spend – stamp duty is charged on the full market value.
Depending on the inheritance tax situation (does the guy have a late wife) it might be more tax efficient to inherit the property – you don’t pay stamp duty on inheritance.
There aren’t major taxes when he comes to sell eventually.
I think the biggest risk is the potential for it to look like stamp duty fraud, none would be due on 50k whereas rather a lot would be due on 600k.
There are also issues to consider such as what if the seller dies before completion.
He’d be best off consulting a solicitor.
ETA as long as it remains his primary residence they’d be no tax implications on selling.
It sounds like this will be inheritance, not sale. Sale has to be in line with the market prices.
If the elderly gentleman passes away shortly after selling the property to your friend, there may be inheritance tax implications for his estate. It’s important for your friend to be aware of this and to seek advice from a tax advisor or accountant if necessary.
I think limit is 7 years, if he dies in 7 years then there will be tax implications