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Buying parent's house for less than market value
Options
Comments
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CGT
she no longer lives there so it is liable to CGT as its sale triggers a CGT "disposal"
you and she are "connected persons" so if sold at below market value then the market value, not what you pay her, must be used in her calculation
her CGT liability may or may not result in her having any CGT to pay as she will be entitled to claim private residence relief and letting relief against her gain. The gain is the difference between what she originally paid to buy it and its market value when she disposes of it to you . As she only moved out " a couple of years ago" it is almost certain her gain will be fully covered by her relief but she will need to do the calculation to prove it
IHT
the "discount" she gives you will be counted as a gift for inheritance tax purposes. I assume your father is dead so this will only be relevant if she dies within 7 years and the value of any gifts she has made exceeds the IHT threshold of her and your father. After 7 years IHT is irrelevant
deprivation of capital
the "discount" could be counted as a deprivation of capital if she needs to claim means tested benefits eg: council care home funding
options
as for other options it seems she is concerned to ensure your other siblings are not disadvantaged by your early inheritance of an asset which will (likely) increase in value hence why shouldn't you get less in the will since she has already given you part of your inheritance as a discount, don't be greedy
her retaining part ownership would mean she would need to be listed on the mortgage since no lender will give a mortgage where there is an unlisted owner. This may or may not jeopardise your ability to get a mortgage as obviously her financial situation will be considered since the lender would look to her to pay in full if you became unable to do so and so the lender invoked the joint liability of its loan0 -
as for other options it seems she is concerned to ensure your other siblings are not disadvantaged by your early inheritance of an asset which will (likely) increase in value hence why shouldn't you get less in the will since she has already given you part of your inheritance as a discount, don't be greedy
But the discount isn't really a discount. The house isn't selling at the current price - it's only worth what a buyer is willing to pay and no-one is taking it at £210k.
A realistic price for the house needs to be set before any further negotiations.0 -
vendor gifted deposits severely restrict the pool of lenders willing to give a mortgagegetmore4less wrote: »If she wants £180 find out what a valuation would be and the excess can be a deposit with any other funds you have.0 -
true, but I was talking about a discount in the context of inheritance, at which point, unless the property sells to an unrelated party then its value will be determined by a paper exercise since there is no unrelated willing buyer to prove "actual" worthBut the discount isn't really a discount. The house isn't selling at the current price - it's only worth what a buyer is willing to pay and no-one is taking it at £210k.
A realistic price for the house needs to be set before any further negotiations.
so as you say a more realistic (lower) valuation may be needed to suit the OP but as there are CGT implications then HMRC will use their own valuation anyway so there had better not be much of a difference0 -
Thank you everyone - my head hurts now! I don't know what to do - think we definitely need legal advice...
Basically, I would really love to buy it from her, but we only have enough savings for a 10% deposit on £180K, so not sure of any other way to make it possible...
NB: she's only 69 and her mum is 92 and still going strong (and living in her own home too!) so I don't foresee er needing to pay care home bills anytime soon (god willing)0
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