Selling a share of your house to a family member

fuschiazoinks

We have one child age 22 who, like many youngsters nowadays, is unlikely to be able to buy their own house. We have a large property and have only 6 years left before our mortgage finishes. We have decided to convert one of the buildings attached to the house, into a one bedroomed property for our child & partner. We are doing this with cash and not on the mortgage. I have been wondering that since she is an only child and our property will eventually become hers, is there a way of selling her a percentage of the house, which she would raise a mortgage on. To me this could have a twofold effect. 1. Release capital for us and 2. Lessen death duties? Any advice would be appreciated.

DVardysShadow

To do it, you need the permission of your lender. But if daughter pays enough to clear the mortgage, you can do what you like.

Thrugelmir

fuschiazoinks wrote: »

1. Release capital for us

Then why not gift the cash allocated to the conversion, to your son when the times comes when he wishes to purchase his first property?

holly_hobby

fuschiazoinks wrote: »

We have one child age 22 who, like many youngsters nowadays, is unlikely to be able to buy their own house. We have a large property and have only 6 years left before our mortgage finishes.

fuschiazoinks wrote: »

We have decided to convert one of the buildings attached to the house, into a one bedroomed property for our child & partner. We are doing this with cash and not on the mortgage. I have been wondering that since she is an only child and our property will eventually become hers, is there a way of selling her a percentage of the house, which she would raise a mortgage on..

Firstly, you need to seek the current lenders permission to alter any aspect of the property upon which they have security.

Laying that to one side, I see what you are trying to achieve, but whilst it is mortgaged, you can't sell her a % of the house independently, and her obtain a seperate mge on the % share of her share. As in essence that would in effect mean there would be 2 seperate mortgages for 2 different parties on the same property, notwithstanding other lender value & ratio aspects that would come into play. So your initial thoughts as they stand, aren't really permissible.

Alternative, is to add her to the current deeds, (assuming she meets lender criteria) her income with others currenly party to the mge, will have to support all borrowings, inc equity release particular to her, and released for your benefit. (this is obv subject to status and max ages of main earners).

All in all its more complicated than just selling a % and her raising a mge solely on that % ..

So, I think, without going into the whole transfer of equity aspect (which is another route), I think the simplist way to do this would be to see about splitting the deeds on the new completed 1 bed dwelling (if its totally self contained) i.e the new 1 bed conversion will be able to be registered as a totally sepeate dwelling in its own right. You will need to speak to your current lender & then your solicitor, about facilitating this (but if a large property, with a relatively small mge (i.e LTV post split and sale will remain within lender limits), and depending on other aspects & property factors - the lender may be agreeable)

You then "sell" the 1 bed property to your daughter (she obtains a mge etc - subject to her status/income) - and you receive your cash injection. If she is a first time buyer, per March 2012, she will also be exempt from stamp duty land tax upto 250K (after this its 125k).

Or possibly use the conversion capital to instead repay the mge, then add her to the deeds (TOE), then she remortgages (borrowing based on her status & income of course) - pay you some capital and complete the conversion. Poss IHT issues to be investigated with your adviser if you choose this route.

fuschiazoinks wrote: »

To me this could have a twofold effect. 1. Release capital for us and 2. Lessen death duties? Any advice would be appreciated.

Well as long as you have spent some or all of the released cash by the time you move to pastures new, yes death duties will technically be reduced (notwithstanding interest added to the capital etc .. etc.. etc..).

I would strongly suggest that if you feel your estate on death will exceed the nil rate IHT band, and you haven't recd advice on estate/IHT planning/Will provision at this point - you do so asap. (you may be able to negotiate a package in conjunction with the legals that will be reqd in respect of the 1 bed conversion if you proceed with its seperate title registration).

Prof advice is required ...I've just given a few of my thoughts on it ... others will/may have a difference approach.

Its a complicated issue further compounded by apparent IHT & tax factors, so have a good chat with your adviser/accountant, your current lender (on all aspects), to see which is the most viable and easier to obtain .... (don't forget in any event your IHT issues need addressing if not already done so, with suitable provision in place ..)

Hope this helps

Holly

CLAPTON

will the property be a proper self contained and sellable flat?
will it be registered seperately for council tax, gas, electricity, water rates?
will these services be seperate from yours?
will it have sperate and independant access from the road?
will she be able to sell it seperately from your property ... she may want a larger property if she has children

will the sale of the property reduce the value of your (main) property

Thrugelmir

holly_hobby wrote: »

I think, without going into the whole transfer of equity, the simplist way to do this would be to see about splitting the deeds on the new completed 1 bed dwelling (if its totally self contained) i.e the new 1 bed conversion will be a dwelling in its own right. You will need to speak to your current lender about facilitating this (but if a large property, with a relatively small mge, and depending on other factors - the lender may be agreeable)

You then "sell" the 1 bed property to your daughter (she obtains a mge etc) - and you receive your cash injection.

Seek professional advice. As the construction and sale of a new dwelling could well be subject to income tax (undertaking a trade) on the profit.

holly_hobby

Thrugelmir wrote: »

Seek professional advice. As the construction and sale of a new dwelling could well be subject to income tax (undertaking a trade) on the profit.

Thanks for raising that Thrugelmir - OP may not elect to split the deeds etc, but its obviously a costly point that needs to be considered during the whole decision making process.

Thanks

H

RecoveringAlcoholic

We have decided to convert one of the buildings attached to the house, into a one bedroomed property for our child & partner.

I know somebody who actually did this.
It ended in tears when the son moved his new partner in with her two children from a previous relationship.

fuschiazoinks

Holly Hobby:
Thank you for taking the time on such an extensive response.
I know this would be a long and complicated road to make sure everything was done legally and properly. My initial thoughts were to add her to the current deeds and then remortgage.
We will not be trying to separate the converted building into another property, it will always remain an "annex".
The conversion capital is non existent as a lump sum as we are on a "shoestring" budget, paying for "bits" on a month to month basis, as and when we have the money.

fuschiazoinks

CLAPTON wrote: »

will the property be a proper self contained and sellable flat?
will it be registered seperately for council tax, gas, electricity, water rates?
will these services be seperate from yours?
will it have sperate and independant access from the road?
will she be able to sell it seperately from your property ... she may want a larger property if she has children

will the sale of the property reduce the value of your (main) property

The answer to all these questions is NO...........it will always remain an annex. We thought that eventually my husband and I would move into the annex and my daughter and her partner could have the main house, should her family "expand".

fuschiazoinks

Thrugelmir wrote: »

Seek professional advice. As the construction and sale of a new dwelling could well be subject to income tax (undertaking a trade) on the profit.

The building is already there, attached to the main house. A two storey building, which only needs the inside converted.