Buying Parents House

LeadHead_2

Hello all,

I'm hoping you can help. My parents are moving out of there current house and have offered the house to me at a reduced price compared to what it's been valued at.

I like the house and the area so it's a great chance to step on to the property ladder.

However, what I'm confused about is do I need a mortgage? Can I just pay my parents a standing order every month and agree a % interest on the full value of the house as I'd rather pay my parents the interest than a bank.

I'm a first time buyer so I'm not that clued up when it comes to purchasing property and what potential pitfalls there might be.

Cheers...

opinions4u

If the house is valued at £100k and your parents are prepared to let you have it for £80k, how will they get their £80k if you don't get a mortgage?

LeadHead_2

Because they don't need the £80k up front.

For example:

House value: £100k
Sold to me: £80k + agreed interest
Deposit: £10k
Left to pay: £70k + interest

I'd pay this off every month to my parents as a standing order.

TrickyDicky

if they owned the house outright, then they could probably do this. You'd need to see a solicitor to set up the financial agreements and stuff because you would essentially be getting a mortgage from your parents.

But if your parents are relying on the money from selling you the house to buy their new place, they would have no chance.

LeadHead_2

My parents have paid the mortgage off and have the deeds to the house and they would not need the money from the sale of the house to purchase the new property.

Would my parents need to register as self employed and pay tax on the money I pay them every month?

GreenSaints

How are they paying for their new house?

You'd need to get a mortgage if they don't have the money for the new house in the bank

alexanderalexander

LeadHead wrote: »

My parents have paid the mortgage off and have the deeds to the house and they would not need the money from the sale of the house to purchase the new property.

Would my parents need to register as self employed and pay tax on the money I pay them every month?

I think you are thinking this is far more complicated than it is. Why would your parents need to register as self-employed? And unless they take a charge over the house as security for the payments, this arrangement does not have the characteristics of a mortgage either.

To me, this is effectively a cash sale of a house – simple as that! The only mildly complicating factor is that the cash payment won't be up front.

Having said that, it's probably worth getting your conveyancers to draw up a payment schedule agreement and to confirm that there are no unexpected tax implications. But since you'll need solicitors anyway to complete the sale, that should be easily done.

getmore4less

LeadHead wrote: »

My parents have paid the mortgage off and have the deeds to the house and they would not need the money from the sale of the house to purchase the new property.

Would my parents need to register as self employed and pay tax on the money I pay them every month?

NO need for self employment just put the interest on the tax return.
(There are simple legal ways round this)


What happens when you can't pay?

Why don't they just gift you the house if they don't need the money?

holly_hobby

There is no reason why you and your parents can not enter into a private agreement as this - BUT - everything needs to be water tight for HMRC and legal purposes.

Yes, your parents will be liable to tax on any monthly interest paid (on top of any return of capital) - this should be annual self assesment.

There are of course major considerations in entering into such an agreement, which need to be clearly discussed within legal docs drawn up in support of the arrangement, and as part of both of your estate planning process.

1. In the event of your not maintaining the agreeed payments, what will happen ?
2. Do you parents require a charge registered against the property (which will be held in your name) with Land Registry to protect themselves if you don't maintain payments ?
3. What happens to the property and debt on you pre-deceasing your parents ? (would the property be bequested to them as part of your will or to another ? It to another - do you intend to effect life cover to repay your parents the os "mortgage" at that time ?
4. What happens to the debt upon your parents pre-deceasing you ? (as upon 2nd death you will effectivcely owe their estate, so would it be written that the personal mortgage arrangement held between you, would be treated as completed in this event (i.e wiped out with nil to pay as part of your inheritance) ? If so, do you have siblings where this may cause an issue ?)
5. Due to the nature of how your parents wish to effect the repayment of the personal mortgage i.e on a drip feed basis, their sale of the propety to you, in respect of any application for state funded long term care, will be treated as a deprevation of assets. So you & your parents may wish to consider effecting private long term provision - and also consider how this will affect any eligibility to means tested benefits for the same reason.
6. There may be IHT issues to consider with regards to how the debt will be managed upon your parents pre-deceasing you (subject of course to the net value of their estate), i.e if the os debt at that time is to be "written off" so to speak - then his will lead to the sum being considered part of the estate, and liable to IHT consideration.

You need to obtain sound legal and estate planning advice on this - its a good opportuity for you and very generous of your parents - but you must make sure that you protect all parties from un-necessary tax liablity and exposure to loss of means tested benefits and assistance.

Hope this helps

Holly

LeadHead_2

The gift is the reduction in the value of the house. I've been brought up to see the value of money and would never be expected to be given a house for free. I was just thinking of a cheaper way to purchase the house rather than pay interest to a bank.

The new house that my parents would be moving to is inherited due to a recent family death.

I thought the taxman would be interested in the cash payments being made every month and I wouldn't want to get my parents in trouble for evading tax etc.

LeadHead_2

holly_hobby wrote: »

There is no reason why you and your parents can not enter into a private agreement as this - BUT - everything needs to be water tight for HMRC and legal purposes.

Yes, your parents will be liable to tax on any monthly interest paid (on top of any return of capital) - this should be annual self assesment.

There are of course major considerations in entering into such an agreement, which need to be clearly discussed within legal docs drawn up in support of the arrangement, and as part of both of your estate planning process.

1. In the event of your not maintaining the agreeed payments, what will happen ?
2. Do you parents require a charge registered against the property (which will be held in your name) with Land Registry to protect themselves if you don't maintain payments ?
3. What happens to the property and debt on you pre-deceasing your parents ? (would the property be bequested to them as part of your will or to another ? It to another - do you intend to effect life cover to repay your parents the os "mortgage" at that time ?
4. What happens to the debt upon your parents pre-deceasing you ? (as upon 2nd death you will effectivcely owe their estate, so would it be written that the personal mortgage arrangement held between you, would be treated as completed in this event (i.e wiped out with nil to pay as part of your inheritance) ? If so, do you have siblings where this may cause an issue ?)
5. Due to the nature of how your parents wish to effect the repayment of the personal mortgage i.e on a drip feed basis, their sale of the propety to you, in respect of any application for state funded long term care, will be treated as a deprevation of assets. So you & your parents may wish to consider effecting private long term provision - and also consider how this will affect any eligibility to means tested benefits for the same reason.
6. There may be IHT issues to consider with regards to how the debt will be managed upon your parents pre-deceasing you (subject of course to the net value of their estate), i.e if the os debt at that time is to be "written off" so to speak - then his will lead to the sum being considered part of the estate, and liable to IHT consideration.

You need to obtain sound legal and estate planning advice on this - its a good opportuity for you and very generous of your parents - but you must make sure that you protect all parties from un-necessary tax liablity and exposure to loss of means tested benefits and assistance.

Hope this helps

Holly

Fantastic post, many thanks for taking the time (and everyone else) to reply. I'll use this thread to discuss with my parents.

Thanks again.