Gifted £60,000 or joint mortgage?

Jamie25

Not sure if this is in the right section... been using the site for a while but new to the forums. Sorry my first post is a big question but here goes!

My wife and I are looking to move from our first property to our second. We owe £130k on our first one (having taken a 100%+ to get on the ladder) and I think it has between 0 and £5k equity it - getting it valued after a few licks of paint etc.

My parents are lucky and kind enough to be in a position to have £100k to 'lend' us to put towards a renovation property. We'll be looking to find somewhere for around £160k and spend £30-40k doing it up with my dad (who retires in July but can't wait to get his teeth into another property!).

Now my question is... should we be looking to purchase a property as joint owners, my share by way of mortgage and my parents by way of their capital? Or can they effectively 'give' us the intial £60k as a deposit and then the other £30-40k to do it up? We would be remortgaging once it was completed to give my parents their money back once it was completed. The house would be mine and my wifes home for the foresee-able future. I'm aware there are possibly tax impications but i just need a point in the right direction.

Cheers all, Jamie (no longer 25!)

patman99

I think the main problem you may have is that if both your parents die within 7 years of the loan and before you pay them back, you will have to pay Inheretance Tax on it. However, if you will be able to pay the loan back quickly, then you won't have this issue.

CloudCuckooLand

A Lender will want all names on the mortgage to match the names on the deeds...

Jamie25

Hopefully the death thing won't be an issue as we're all fit and healthy but who knows what might happen.
Lender wanting names on deeds... if we went as joint owners, our mortgage and their capital, I guess they could sell their share to us for whatever we chose between us when completed? Although I assume we'd get cheaper rates on teh mortgage if my parents could gift us the money initially as we'd then have a big deposit. As opposed to one rich buyer and one with no deposit for their part of the mortgage?

getmore4less

patman99 wrote: »

I think the main problem you may have is that if both your parents die within 7 years of the loan and before you pay them back, you will have to pay Inheretance Tax on it. However, if you will be able to pay the loan back quickly, then you won't have this issue.

If it is a loan they would just owe the estate the money.

IHT is paid by the estate only if the assets are over the nil rate band. £650k for a couple.

Even as a gift it is the estate that pays the tax not the person getting the gift(unless there is no money in the estate).

Problem is it is a loan and not a gift which will effect getting the mortgage.

If you pretend it is a gift when it is a loan that is mortgage fraud.

Joint purchase(which means joint mortgage) will have issues when you come to transfer the equity if you all don't live there CGT becomes a potential issue.

There is also the issue of trying to remortgage and release funds, that may not be possiible to the level required once done up.

Chances are if you get the mortgage no one will find out/care about the financial structure in the family.

Get the [STRIKE]loan[/STRIKE]gift into your accounts now, even consider paying down you current mortgage with the money before you sell so the cash is there after the sale of your current house as a deposit for the new place.

Thrugelmir

getmore4less wrote: »

Get the [STRIKE]loan[/STRIKE]gift into your accounts now, even consider paying down you current mortgage with the money before you sell so the cash is there after the sale of your current house as a deposit for the new place.

The inherent danger is that the party loaning money has no control over the funds. Should the OP split from his partner for example. As there is no evidence to support the arrangement for the transaction.

As the OP has no equity. The reburbished property will consist of £100k mortgage and £100k loan. How will remortgaging enable the repayment of a £100k to the parents? The mortgage will be limited to the affordability of the OP.

Jamie25

Thanks for all your replies. Hopefully depending on what the property would be valued at when it competed we'd be able to give the folks back the majority of what they've put in and worry about the rest later. I'm going to see a few financial/mortgage advisors over the next couple of weeks but it'll be good to have some idea around the subject before when I meet with them.
I assume that capital gains tax would only come into it if the parents took out more than they'd put it. Ie if both parties put in £100, and upon completion it was valued at £220, we could buy them out without them incurring CGT. That's assuming we could get a 90% mortgage.

Thrugelmir

Can you afford a £200k mortgage at a 6% interest rate?

Why is the refurbishment going to add 10% to the property's value?