Q I am 64 years old and a homeowner, but I also own a second property worth around £180,000, which I bought with an inheritance. I rent this house for a modest sum to my daughter. She is a mature student who is finishing university this year and hopefully will soon move into full-time employment.
I pay no tax at present, but when I reach 65 in six months’ time I will receive my state pension, which, taken together with the rental income, will push me over the personal tax allowance.
Would it be possible to give my daughter the money to buy this house from me with an interest-free loan over, say, 30 years? My partner and I will have enough to live on without the rental income once we receive our state pensions. I understand I would have to pay capital gains tax initially but, as I have lent the money interest-free, I will be making no further profit. As I am not making a profit I assume there would be no tax return to file and no tax to pay on the loan to my daughter. I would, of course, set up the interest-free loan through a solicitor. CG
A I expect I am missing something, but if you won’t need the rental income once you start getting your state pension, why don’t you let your daughter and grand-daughter live in your second property for nothing? It is possible to lend your daughter money to buy the property from you – and you would be wise to get a solicitor to draw up a repayment agreement - but why complicate matters?
Rather than lend your daughter the money to buy the property, it would be simpler just to give it to her. There would be a capital gains tax bill – as there would be if you sold it to her – but you would be able to use the cash you would otherwise have lent to her to top up your income, with no income tax implications. Giving her the property would also have the potential to reduce a future inheritance tax (IHT) bill. Provided you live for seven years after making the gift, the property would no longer count as part of your estate on your death and so would not be liable for IHT.
