Buying parents house

susiec01

My mum and dad are finding it difficult to survive on their pensions. They have a property worth £220,000 and have an interest only mortgage of around £90,000. They would like to sell us the house at a reduced rate to release some equity. They would move into our smaller property which we would still pay the mortgage on. Can they sign over the £90,000 mortgage over to us to keep all their outgoings to a min?

Thanks

Annisele

They can't just "sign over" the mortgage, no. They can sell you the house at a reduced rate, and you *might* be able to use some/all of that reduction as your deposit. You'd still need to find a lender prepared to let you borrow £90k.

However, I don't quite see how your plan lets your parents release any equity. If you're wanting to borrow £90k against their house, where will the released equity come from?

And have you thought about the tax implications of what you're doing?

beezbonnet

You can contact the company the mortgage is with and ask if the mortgage can be amended to ad your name to the mortgage along with your parents but this is unlikely to be possible without re-mortgaging.
What you need to do is re-mortgage the property in your parents and your name. You can then get the deeds amended at the land registry to show their name and yours. You can speak to the land registry and ask for advise explaining you want to help your parents financially sharing the mortgage payments and you wish for your name added to the deeds. You don't need to speak to the bank about possible mortgage difficulties, (it doesnt seem your parents have difficulties just a lack of disposable income) you'll just make any future mortgage appear more risky and potentially more expensive.
You will still own your property, your name will be on your parents property also. There should be no problem with stamp duty , there might well be if you bought your parents property for an unrealistic sum that would be potential tax evasion!
Its possible there may be some inheritance tax issues if either of your parents die in next (think seven years) but from what you explain this is unlikely to be a problem due to the sums involved and by adding your name you their deeds you should be fixing any inheritance issues.
Whether you decide to live in your parents house and they live in your is up to you.

Thrugelmir

More complex than just "signing over the mortgage". Though an exchange of properties should be feasible depending on your financial circumstances.

getmore4less

How much do you owe on your place.
What is your place worth.

Could you get a mortgage for the full amount

Might be easier to just mortgage the bigger house for the full amount and leave the smaller house mortgage free for the parents.
Protects them from you having financial problems

Another option which would be very simple just live in each others houses you are going to be responsible for the costs anyway.
(There are issues with this but solves the short term.)

Things to think about.
IHT does not look like it will be an issue for parents.
Deprivation of assets could be depending what you do and how big a discount if you buy theirs.
CGT could come up if you swap without changing ownerships.
SDLT is different for a house wap, look it up.

beezbonnet

The £90,000 is less than the £125,000 stamp duty threshold.SDLT
Your parents estate , considering the £90,000 debt is unlikely to be more than the inheritance tax threshold. If you were simply to pay thier mortgage you could reduce it to the point where one day you'd end up paying inheritance tax on what was your money.
As I said, you need to look at adding your name to your parents deeds so you can share ownership and share mortgage payments.
If your mortgage on your property is less than around £40,000 it might make sense to take a larger mortgage on your parents property and clear your mortgage. Even if you have an existing mortgage, you should still, based on your income and your parents, manage to secure a £90,000 mortgage between you.
This really is what you need to do as it will have the least negative implications. You will initially likely own a £30,000 (approx 1/7th) stake in a £220000 house, after 7 year your stake I believe would be 1/3rd value of the property for inheritance purposes so your parents should have a Will if you have other siblings to prevent nasty family arguments if you were to inherit what might be seen as more than your fare share.
Some may argue your parents would need to pay you rent on your stake in the property, (anyone want to argue if that is so or not?) but based on your small contribution we would be only talking less than £1000 a year. If you deem it necessary your parents could pay you a small rent, based on your 1/7 stake £600 / 7 = About £85 a month. This is as much as your parents, or you in assisting them, may be spending on maintenance costs anyway and as you own part of the property you can spend anything they give you on maintaining the property, paint, gardening costs etc keeping all reciepts so if you did have any tax implications you have evidence that money you recieved was not used as income.

Mojisola

susiec01 wrote: »

My mum and dad are finding it difficult to survive on their pensions.

Apart from the moving house solution -

Are they claiming everything they are entitled to as pensioners?

Could they reduce their outgoings? There's plenty of good advice on the Old Style and Debt Free boards.

CLAPTON

beezbonnet wrote: »

The £90,000 is less than the £125,000 stamp duty threshold.SDLT
Your parents estate , considering the £90,000 debt is unlikely to be more than the inheritance tax threshold. If you were simply to pay thier mortgage you could reduce it to the point where one day you'd end up paying inheritance tax on what was your money.
As I said, you need to look at adding your name to your parents deeds so you can share ownership and share mortgage payments.
If your mortgage on your property is less than around £40,000 it might make sense to take a larger mortgage on your parents property and clear your mortgage. Even if you have an existing mortgage, you should still, based on your income and your parents, manage to secure a £90,000 mortgage between you.
This really is what you need to do as it will have the least negative implications. You will initially likely own a £30,000 (approx 1/7th) stake in a £220000 house, after 7 year your stake I believe would be 1/3rd value of the property for inheritance purposes so your parents should have a Will if you have other siblings to prevent nasty family arguments if you were to inherit what might be seen as more than your fare share.
Some may argue your parents would need to pay you rent on your stake in the property, (anyone want to argue if that is so or not?) but based on your small contribution we would be only talking less than £1000 a year. If you deem it necessary your parents could pay you a small rent, based on your 1/7 stake £600 / 7 = About £85 a month. This is as much as your parents, or you in assisting them, may be spending on maintenance costs anyway and as you own part of the property you can spend anything they give you on maintaining the property, paint, gardening costs etc keeping all reciepts so if you did have any tax implications you have evidence that money you recieved was not used as income.

I'm sorry to say I think you are somewhat stretching your knowledge of the housing buying/mortgage process, of how inheritance tax works and of how capital gains tax works
your advice is dangerous and wrong and may well lead the OPs to make poor financial dicisions

beezbonnet

Thanks CLAPTON if you wish to put me right on this please can you explain it would be really helpful if you are knowledgable in this area.

I assume there is trust between OP and the parents and that neither is likely to try and swindle the other.
I understand that a house swap would involve STAMP duty on both properties, which others have indicated not.
I understand any kind of reduced rate sale which OP suggested may be potentially fraudulent.
If OP wants to assist parents with mortgage, sharing the mortgage payments and adding name to deeds would seem the correct thing to do, I have suggested contecting the land registry to discuss this before proceeding.

I believe there may be a tax issue around ownership if both the parents were to die within 7 years.

I dont believe there will be issues about not charging rent to the parents on a small contribution to the property.

If you could put me right on this and explain why my information is incorrect and what would be a better way to proceed that would be most helpful to all following this thread.

CLAPTON

there's nothing fraudulent about selling a house below true value unless done to defraud the HMRC; one can give ones house away if one wants.


on a mortgaged property you can't change the ownership of the property by contacting the Land Registry as the mortgage company will have a charge on the house

it is very important who owns a house and who actually lives there; on the sale of a property one is only exempt from capital gains tax if you actually live in the property as your principal private residence
so if a property is owned by three people and only two live there, then, when sold cgt will be liable on the non-residents share

IHT doesn't seem an issue here as the value of the property is low and one assumes that the OPs parent have little other assets.
However if IHT were a potential issue one would need to consider the 7 year rule, potential exempt gifts, gifts with reservation and whether or not the parent would pay rent to avoid IHT on death.

And on the issue of trust:
well if the OP owned a share of the parents house : if the OP is married and sadly dies before the parents then his share passes to his spouse. The spouse may wish/need to realise the capital in the property and force a sale.
alternatively if the OP had financial difficulties in the future, creditors could demand the parents property be sold to realise the value of the asset.


I realise you are trying to be helpful but you really need to actually KNOW what the 7 year rule applies to ; you need to actually KNOW about cgt on property sales etc.

If you continue to read these boards you will quickly learn but do be careful about being so positive when you don't really know enough... we all do it and I'm not saying I always get it right either but just do be a little more careful.

best wishes

beezbonnet

Thanks for clarifying your knowledge and point of view.

Maybe I think we both saw this from a diferent angle.

there's nothing fraudulent about selling a house below true value unless done to defraud the HMRC; one can give ones house away if one wants.

Id been a little more concerned about this than you and thought that selling below value in this case might draw attention from HMRC and also could give raise to future capital gains issues if
OP ever had to move to seak employment or rent the house.
I saw this as a problem, You obviously did not and I think this is where our very difference of opinion stems from.
If its really OK for OP to swap houses with parents without incuring
stamp duty then I see your point of view. I still have some doubts about that but since you and Annisele both suggest that I may read up on this.

on a mortgaged property you can't change the ownership of the property by contacting the Land Registry as the mortgage company will have a charge on the house

Yes the Mortgage company will have the deeds and the mortgage would have to be changed I thought I had said that.

You make a valid point as to wives and husbands, alas they are not always as reliable as parents. OP would have to consider thier spouses mentality when assisting his or her parents financially or vice versa.

if OP is married and sadly dies before the parents then his share passes to his spouse

OP can fix this in a will, more the problem if OP is involved in a divorse settlement but your right, this is a consideration and a very complicated one. If there are ways to protect the parents/tennants from the potential wrath of a spouse I would be getting out of my depth exploring tenancy and divorse law.
Only OP can assess the risks.