House Swap with my Dad?

Hi
I would be grateful for any input/advice from the wise mortgage experts on here! My situation is that I am splitting from my partner and need a house for me and my 2 children, I will have around £100k equity from the sale of my property and estimate that I could potentially get a mortgage of around £80k (salary £22250, excellent credit history). I can't afford a large enough property where we live, however my Dad owns outright a 3 bed bungalow nearby. He, in turn, is looking to move to another area to be closer to his sister and I could easily afford a 3 bed house there. My thoughts are this: why don't I buy a house which he will then live in, and me and the children move into his current house? It seems simple enough, but I am sure there are issues I haven't thought of! :)

Comments

  • holly_hobby
    holly_hobby Posts: 5,363 Forumite
    1,000 Posts Combo Breaker
    edited 9 February 2012 at 4:55PM
    Presume there is no mortgage on Dads current home - and you would buy the property for Dad (for mortgage purposes) under provision for dependants.

    If so, the issues I can see are ..

    1. If you have siblings or other beneficiaries that Dad would wish to provide for, you may have to vacate his property on his passing to allow disposal of his estate.

    2. Upon Dads passing (or moving out of the property you intend to buy for him), and your subsequent sale of the same, there will be a CGT liability on any gain realised upon disposal (assuming at the point of sale it was never registered as your primary residence). This may be extingushed by your annual CGT allowance - depending upon the gain and your unusued annual allowance.

    3. If Dad applies for state funded long term care, his property will be considered as part of his assets for funding purposes (which may also occur if he transferred it into your name). Which means that you may lose your home (although you could obviously move into the property you purchased for your Dad, if this event occurred). This may be avoided by the effecting of a long term care policy for your Dad (long term care adviser will assist).

    4. Dad could transfer the property into your Name (if no mortgage to complicate things), but this will incur stamp duty issues, issues raised in point 3, and possible IHT/PET issues depending upon value of his estate (which isn't known at this point).

    Sure other points I've missed (I'll pop back if I think of anything) - but this will get things started for you.

    Hope this helps

    Holly
  • Thank you Holly, that is very helpful. No, there is no mortgage on Dad's property - can you explain what is meant by provision for dependants? Would a mortgage lender be happy with the arrangement?

    When Dad passes away, myself and sis will jointly inherit his estate so I would obviously have to vacate his house at that point, and we would have a legal deed drawn up to cover this. My share of his house together with the house that I purchased should give sufficient funds for me to purchase another property.

    I had thought there may be potential IHT/CGT/long term care implications so we would take professional advice on these points. Dad's property is currently worth around £400k and he does have other assets/investments. I believe, however that in addition to his IHT allowance, we would also be able to use my mum's unclaimed allowance? (she passed away last September and her entire estate passed to Dad with no IHT liabilities being due).

    I really appreciate you taking the time to reply - thanks again
  • Conrad
    Conrad Posts: 33,137 Forumite
    10,000 Posts Combo Breaker
    You can do as you wish, but the new property purchase needs to be positioned carefuly, either as a B2L or as your main resi, but if Dad lives there the buildings insurance may become invalid.

    Might be easier for you to buy his place then raise finance against it. Some lenders allow this, other want a 6 month period to expire before you may apply.
  • holly_hobby
    holly_hobby Posts: 5,363 Forumite
    1,000 Posts Combo Breaker
    Mortgage for dependants - is where you effect a mortgage on a property that is not to be your residence, nor rented out (as to do so would require a regulated BTL lender due to residence by a family member), but for the domicile of a relative such as Dad.

    Yes professional estate planning should be effected to ensure all possible liabilities are catered for, with a will drawn up and provision made accordingly.

    Hope this helps

    Holly
  • Thanks again Holly, will look into the estate planning matters in more detail and discuss with Dad.

    Conrad - forgive my ignorance but I am not sure if you mean (a) purchase house for Dad, or (b) me purchase Dad's current property and then raise finance? I would not be able to do (a) without the assistance of the mortgage and could not afford (b) even with a mortgage. We wouldn't charge each other rent - just that he would live in the house that I owned, and I would live in the house that he owned.
  • laurel7172
    laurel7172 Posts: 2,071 Forumite
    If at some point in the hopefully distant future you were to inherit half of Dad's house, would you be able to raise enough (via sale of your house and possibly by mortgage) to afford the other half (i.e. pay your sister her share?)
    import this
  • Hi Laurel
    Yes, that may be a possibility. My sis would not be interested in moving into Dad's property herself as she lives at the other end of the country. Would obviously depend upon my earnings at the time, and how much I could realise from the sale of my house.
  • Willow_K
    Willow_K Posts: 177 Forumite
    forgive my ignorance but I am not sure if you mean (a) purchase house for Dad, or (b) me purchase Dad's current property and then raise finance? I would not be able to do (a) without the assistance of the mortgage and could not afford (b) even with a mortgage. We wouldn't charge each other rent - just that he would live in the house that I owned, and I would live in the house that he owned.

    Could you not buy your dads house at a reduced price?

    So if you were going to buy a house for £180k in the other area, you could buy your dads house for that and he could then use the money to purchase the other house outright - you would then have the mortgage on the property you are living in.

    If your dad's house is worth around £400k, you could draw up a contract that said that when he passes, you keep the house and your sister gets the proceeds from the other house. Much cleaner, no issues with rent and cgt and you and your children would not have to move when your dad passes.

    There may be issues if he dies or needs to go into long term care within 7 years due to deprivation of capital. You would need to get professional advice as to what affect selling a house under value would actually have on IHT etc.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    A simple solution may be to buy the property off your dad under value with as big a mortgage as you can get.

    If that gives him enough money to buy a place where he wants to live then he buys that.

    You then sort out the estate planning by potentialy reducing your future share to reflect the early access to part of the estate.

    You get the utility of the house the same as you would with your plan.

    You avoid all your future CGT issues and the multiple sales moves that would just eat cash.

    You then need to start your own estate planning since as you pay the mortgage down you will be over the limits of one nill rate band.

    I guess the starting point is what would dad do with the money if he sold up and bought a cheaper place?


    Not really enough information on the full family setups to say if any particular approach is best or even practical but there are other options to investigate.
  • Many thanks to all who have replied. There are obviously some issues to think about and take further advice on, but it seems 'do-able'.
    Really appreciate your help and input
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