Buying property from abroad

robashby

My situation is a little complicated and I would like some advice please.

I currently live abroad with my wife and we own a property in the UK worth 150k on a consent to let Mortgage. As we live abroad we want to buy another house as an investment, having no pension.

It seems to be a nighmare to get any type of Mortgage at the moment so I wondered about the follwoing possibility:

My parents remortgage their house in the UK and lend us the money to buy a house outright. We then pay them back monthly (which will cover their new mortgage) until we have enough equity to get our own mortgage and pay them off in full.

I just wonder what the tax implications are of doing this are (gift, inheritance and capital gains).

I hope this makes sense and thanks in advance for your help.

anirow

Well this remortgaging is rather unique to UK where one mortgage is paid off from a new mortgage using same property as a security. I think you should contact companies like halifax to know more about the tax implications.

Senior_Paper_Monitor

Its not a gift (you are paying it back) - a 'gift' must be without conditions.

If it's a loan agreement - it will be repayable in accordance with the agreement (in the event of death of one or both parents, time, certain circumstances etc).

If it ceases to be payable at any circumstance (i.e death of one or both) it will become a gift at its then current value (and included for IHT purposes).

If you (and wife) are to be the owners of the property (and the first one) both are potentially subject to capital gains (as neither is your primary residence, although there are some complex rules concerning UK citizens temporarily abroad and returning to the UK which may benefit the first one).

If you parents are in the IHT bracket, and you and your are going to be a multiple property investor while domiciled elsewhere you all need advice from a good estate planner.

robashby

Thanks for your replies.
Neither of the poperty values will be within the IHT bracket, which I believe is £325,000? Just two questions, then:
If I am paying them interest on the loan (because I'll be paying their interest at whatever rate they receive from the bank), will they have to pay any tax on the money they receive from us?

Secondly, if one or both of my parents die, as long as they take out life insurance (which we would also pay for), that insurance would then pay off their mortgage even though the money they gave to us would then become a gift. Am I right in thinking this?

Thanks very much.

Senior_Paper_Monitor

1st question - Yes - if they receive interest from you that is 'income' for the purpose of tax liability.

2nd question - totally depends on the policy ownership and any associated trust structure ('but this certainly could be done in an IHT/IT efficient way)

Final point - your parents will have a 'joint allowance' i.e 2 x £325,000 but it is the total estate value rather than individual property value.

There are a number of other issues - do your parents have enough income to meet affordability for the mortgage ? What would happen if you/wife died with debt outstanding ? Are appropriate wills in place ? Are any insurances and other assets within your parents estate that would be impacted by IHT.

Nothing you are talking about seems undoable, but to do it properly you need advice - it would appear that a good experienced broker or IFA could handle this adequately rather than a pure estate planner, but their input could be invaluable to your family.

robashby

Ok it sounds like this route is a possibilty.

The only problem could be tax on our repayment. I just hoped that as they are, in effect, getting a loan to give us a loan, our repayments would not be taxable.

Anyway, thanks again for your help :beer:

Senior_Paper_Monitor

Repayment of capital will not incur a tax liability for them.

Payment of interest on the capital outstanding may incur a tax liability.

You can gift family members (or anyone else for that matter) up to £3,000 per year (+ last year's allownace if not used) without it being accountable for IHT (and gifts do leave the receivers liable for income tax).

I repeat that you should take advice in structuring this whole deal - not rely on some jerk on the internet (who does not have your and yoru parent's full circumstances available to him) !