Purchase 1/2 of my mothers house

Fizzer

My mother has come to the end of her mortgage, she's 66 and drawing a pension and needs cash (and a holiday - she works so hard!) She still works part time and has modest income but does have some credit card debt.
We've looked at options for her to move house (market value £250K), however she would have to downsize or relocate, neither of which she wants to do.
My wife and I have some savings and are enquiring about getting a second mortgage to purchase 1/2 of her property (our house is mortgaged). My assumption is that she would pay us rent at 1/2 the market rate, I'm not sure what the tax implications of this are.
Our primary aim is to keep mum in her house for many years to come avoid the dreaded equity release - not to avoid inheritance tax or care fees...
We have a trusted mortgage advisor coming round next Tuesday, but I'd like some advice on the wider implications of doing this, not just whether the bank would lend us the money and how much it would cost.

holly_hobby

Tax is payable on net rental income - regardless of its source i.e family memeber. (if its less than £2,500pa and you are PAYE - you may arrange for HMRC to adjust your tax code and collect this directly at source. If over £2500 pa or not PAYE - annual self assessment to declare and pay tax due)

CGT - if not, or never been your main residence at disposal, you are liable to CGT on the full gain (less annual allowances).

If it has been/is your main res at some point between purchase and sale - there are further allowances that can be applied to any gross CGT liability.

Afforability - your income will need to service all of your own commitments and also the mortgage to be secured on Mums home. (won't go into how to effect the mge, or poss complications, as you say you have your own adviser whom will provide guidance).

Possible issue re any application for state funded long term care and deprevation of assets, as Mum has effectively signed over 1/2 of the property value. (as a point - you should ensure that any mortgage is effected as Tenants in Common - whereby you may officially split the equity on the property re CGT issues, which will assist with split of rental income for HMRC purposes). Also means that Mum may independently bequest her share within any will, as may the other owners of course.

Hope this helps - I am sure (or at least hope !) that your own adviser will raise & discuss the above matters.

Holly

Thrugelmir

Fizzer wrote: »

We've looked at options for her to move house (market value £250K), however she would have to downsize or relocate, neither of which she wants to do.

Holly has covered the issues that will arise in what you propose.

Fully understandable that your mother doesn't wish to move. Some decisions in life aren't easy. Though may be for the best in the longer term. So try and gently persuade your mother this may be the best option.
Releasing equity now to invest and clearing existing debt. Will enable your mother to enjoy a comfortable retirement.

kingstreet

In most cases, the deeds to the property and the mortgage have to be in the same names - therefore you'll be applying for a mortgage jointly with your mother and conducting a transfer of equity to have you included on the deeds. This will require a solicitor's services.

As a result you may struggle with the term you are allowed due to her age.

HSBC seem to accept different owners/borrowers so it may be worth a word with them.

The solicitor should also discuss Stamp Duty issues with you (if any) on the transfer. Finally, make sure you work out whether this will be a joint tenancy or a tenancy in common. In the former case, the deceased's share passes automatically to the survivor; whilst in the latter the share passes into the deceased's estate and is distributed according to their will or intestacy.

holly_hobby

Yes - the requirement of a joint mge app and Mums age were the "complications" I eluded to ... in my earlier post ... (tenancy already covered).

A joint mge means that your Mum (as are all parties) will be fully liable for the whole mortgage repayment. (she may not want this responsibility, especially as she is currenlty mge free).

It also means that life protection is essential on all parties whose income has been assessed as part of the uw. As upon those parties (one or both) pre-deceasing Mum, she will be possibly left with the mge liability to pay - or face losing not only you but her home too. You will know the figs so will know how the life protection should be apportioned/effected - you're looking for guidance from your adviser too on this.

As Kings states HSBC, and also Barclays are rumoured to consider differing parties to mortgage liability and those named on the deeds - which means that Mum may not have to be party to the mortgage at all.

I think rather than throw any more info at you, and possibly overload you !!! Is to speak to your Adviser, consider what we have raised here - and return for more guidance if required.

Good luck

Holly

kingstreet

holly_hobby wrote: »

Yes - the requirement of a joint mge app and Mums age were the "complications" I eluded to ... in my earlier post ... (tenancy already covered)

I know. Sometimes I get in full flow then realise it's something someone else has already covered. Then I sit thinking about whether to edit or leave it.

In this case I decided to leave it just in case the OP's an only child and she'd wish to leave her share to him anyway, notwithstanding the care funding implications of course.

RenovationMan

Thrugelmir wrote: »

Holly has covered the issues that will arise in what you propose.

Fully understandable that your mother doesn't wish to move. Some decisions in life aren't easy. Though may be for the best in the longer term. So try and gently persuade your mother this may be the best option.
Releasing equity now to invest and clearing existing debt. Will enable your mother to enjoy a comfortable retirement.

Totally agree with Thrugelmir here. It is a difficult decision to sell a house that has held a lot of memories, but not only will your mum release tax free cash from what I am assuing was a family home (?) but she will also possibly benefit from lower utility bills, council tax, buildings insurance, etc.

holly_hobby

kingstreet wrote: »

I know. Sometimes I get in full flow then realise it's something someone else has already covered. Then I sit thinking about whether to edit or leave it.

In this case I decided to leave it just in case the OP's an only child and she'd wish to leave her share to him anyway, notwithstanding the care funding implications of course.

Thats ok it really wasn't meant as a neg to you - I just meant for you to know that I mentioned it, in case you thought I had forgotten ....

I know when I get in full flow, I sometimes go on a bit (I don't mean to, but I try and include everything I think will have an impact in one post .... :A)

At least between us all ,the OP knows that they have willing help and support when in need.

H x

kingstreet

holly_hobby wrote: »

I know when I get in full flow, I sometimes go on a bit (I don't mean to, but I try and include everything I think will have an impact in one post

Surely no-one would say that about you, H?

holly_hobby

I know it would be scandalous wouldn't it ... !!!

H x

Fizzer

Wow, what can I say. Thanks or all the very helpful advice folks, that's great.
All of the above sounds like sound, sensible advice. I suspected there may be more to it that meets the eye
I'm at work at the moment but will be able to read through in more detail over the weekend. I'll certainly have a lot of questions for the advisor on Tuesday.

WRT to mum moving, we've been talking about it for some time and she's really settled in her house with friends nearby and great neighbours, she also works from home so has a requirement for an extra room downstairs which is hard to get in a good area and still release enough equity.

Either way, she's moved unwillingly several times in the past, lost everything later in life and worked very hard to get where she is, she'd really like to stay!

WRT to siblings, I have three brothers and I wouldn't want to affect them if possible.

Thanks again
:T