House swap with father in law

ryan381 · 31 January 2013 at 10:55AM

Hi,

I am based in Scotland

my FIL is mortgage free and owns his property outright his property is approx £250k

My wife and I have a mortgage of £150k, we have £30k in our property and our property is approx £180k

We are no longer in a fixed deal and on a variable rate, our mortgage is portable and we want to stay with the same lender on a new deal.

So the proposal is that no money will be exchanged my FIL does not want anything, so we will effectually be gifted the difference in valuations and buy his property for £150k.

We understand we will both have stamp duty, buying/selling solicitors fee's etc but how does this actually all work?

Is it simple move our mortgage to buy my FIL property at £150K and as we would have £100k equity in the property that is classed as out deposit?

Then does my FIL just get our place through the solicitors work as he has no mortgage company involved?

I hope this makes sense to someone

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Mojisola · 31 January 2013 at 11:12AM

Has your FIL taken advice about whether he could be affected by the deprivation of capital rules after giving away £100k?

ryan381 · 31 January 2013 at 11:24AM

Hi

I should have also stated that his full estate is currently under the £325k inheritance tax threshold.

As for capital Gains from what I could tell he would not be subject to it or would we, as we are basically house swapping....its not that he would still be living in the house he has gift to us (well the 100k not the house) he is living in ours and we are living in his which we have bought at a less than valuation price

Mojisola · 31 January 2013 at 11:28AM

Deprivation of capital refers to how he would be assessed if he needs means tested benefits in the future, particularly any care needs.

He could be assessed as still having that £100k and therefore not entitled to state help.

It depends a bit on how old he is and what his health is like now but there are no time limits on DOC.

ryan381 · 31 January 2013 at 11:38AM

Ah I was not aware of that...he is 65 and as far as we know in good health.

If it was gifted to us then I am not sure how it woud still be classed as still his it would actually be £70k that was gifted as we have £30k in our property also.

I am guessing that after 7 years there is no inheritance tax issues, so I guess that Deprivation of capital is a risk anyone will have gifting away money

newsgroup_monkey · 31 January 2013 at 11:40AM

Don't forget folks this is Scotland so might be slightly different.
This may become relevant to me in the future so I've had a look.

This is from http://www.agescotland.co.uk

People do not always give away capital to deliberately avoid care home fees, or this may not be the only reason for a transfer of capital. The council must show that it is the most significant reason for the transfer if they are alleging that there has been deliberate deprivation. Timing may also be important in establishing what the reasons behind the transfer; if someone gave presents to family at a time when they were fit and healthy and not anticipating needing care, this should be explained to the council.

I don't know how councils work, but there seems to be a lot of scaremongering around deprivation of assets.

if someone is fit and healthy in their 60s and they want to help their kids out (possibly by downsizing), I don't think this is what deprivation was supposed to attack. It was supposed to attack people who clearly were going to need assistance in the near future simply gifting their assets to their kids to avoid it getting swallowed up.

ryan381 · 31 January 2013 at 11:45AM

I would say that makes sense newsgroup_monkey after all its 70k he still holds a property at £180k plus savings and at the time he is fit and healthily, we have a 2 bed smaller house, he has a 3 bed bigger house....one of him and 3 of us

How could they really challenge...also knowing my FIL i am guessing he also holds some kind of insurance for care when and if he needed this

So back to my original post how does this actually work? :-)

Mojisola · 31 January 2013 at 11:45AM

newsgroup_monkey wrote: »

I don't know how councils work, but there seems to be a lot of scaremongering around deprivation of assets.

if someone is fit and healthy in their 60s and they want to help their kids out (possibly by downsizing), I don't think this is what deprivation was supposed to attack. It was supposed to attack people who clearly were going to need assistance in the near future simply gifting their assets to their kids to avoid it getting swallowed up.

It was but the rules are extremely vague, no-one will give a plan the okay before you go ahead and councils are increasingly looking for ways to save on bills. It's always worth considering before giving away money when you're older.

As a healthy 65 year old, ryan's FIL should be okay but there's no guarantee.

kingstreet · 31 January 2013 at 12:02PM

You cannot transfer a mortgage from one property to another.

You may be able to port the rate from the old mortgage to a new one with the same lender, if you meet the lender's qualification/valuation rules when you apply.

The amount you currently have on the old rate would be supplemented by the extra borrowing you need, which would be offered on one of the lender's current new products.

Seek legal and financial advice on structuring this transaction, as it may be best to have it considered a "purchase at undervalue from a family member" to get a lower loan to value and corresponding better mortgage product. Some lenders will not accept this, others will.

ryan381 · 31 January 2013 at 12:05PM

Hi yeah we wouldn't be looking to transfer it, we would either port it or take out a new deal with our lender on my FIL property which would then in turn pay off the one on our property

I.e as you would on a buy/sell

Ok so would it not work like this.......

my wife and I take out a new mortgage or port with our existing lender and buy my FIL's place for £150k.....that cash is then transfered to my FIL solicitor as he doesn't have a mortgage company and they then pay the payment back to our lender to clear the mortgage on our property mortgage?

kingstreet · 31 January 2013 at 12:23PM

If you buy for £150k, where's the deposit coming from?

If you don't use some of the additional value as deposit, you'd have to come up with cash. That's why I suggested the family purchase at undervalue option.

What happens to the money in your father's hands is secondary, at the moment.

House swap with father in law

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