Loan from mother - is it legal?

Anna_Georgia

My mother is a widow and wishes to downside to her keep living costs to a minimum. The sale of her current home should enable her to purchase a city centre flat (c.£140k). She is in her 60s, lives off the state pension and has some modest savings in the region of £50k invested as income bonds.

I’m a tenant but have been unable to obtain a mortgage. My mother is prepared to sell her new flat to me after she has moved in, by effectively acting as a “bank” by way of me arranging a monthly standing order to credit payments to her so that she can have additional income and I can own the property in the future.

We’ve not sure who to approach for advice and would like some guidance on the following:

1. Firstly, is this private arrangement legal?
2. Would my mother be liable to pay income tax on the monthly payments I make to her for the property?
3. I have two brothers and if my mother passed away before I paid the full amount for the property, would they have claim on her home despite me “owning” a percentage of the flat?

I'm single and don’t expect to live with my mother in her new flat as she is very active and in good health.

Thanks for any advice.

Gogled

This is an absolute minefield and both you and your mother need proper legal advice.

To answer your questions:
1. On the information given and assuming there is not a mortgage company involved, it is legal.
2. Your mother would not be liable to income tax. You are not paying her a rent. You are purchasing the property. Effectively she is selling you the property. There may be a capital gains tax liability.
3.This depends on so many things and what is agreed between the parties. However, if your mother sells the property to you and, on her death, there is an outstanding balance owed to her, then this debt is an asset in her estate and will be enforceable by her executors.

There are lots of other concerns as well. If I was your mother, I would definitely not do this.

From your point of view, do you really want to buy a property that you can't live in and are receiving no rent for. You also need to make sure that your name goes on the deeds, at which point, of course, the property is your responsibility. Then there is what happens if your mother goes bankrupt/needs to go into a nursing home. What happens if you can't make the payments/get divorced...

Overall take legal advice, please.

Thrugelmir

Gogled wrote: »

This is an absolute minefield and both you and your mother need proper legal advice.

Agree totally. While the principle is admirable. There is so much to think through.