Daughter Buying Me A House: Pitfalls? Advice?

MelaBella

skintandscared wrote: »

So if you give your daughter the deposit, and pay the monthly mortgage payments, who owns the house?

if the daughter takes the mortagge in her name, then the daughter legally owns it (well, its actually potentially lender's propery anyways untill the mortagge is repayed:p)

InMyDreams

WoodruffsDad wrote: »

She does. And when my wife and I snuff it she takes over and does what she wants with it: rent it out, live in it, sell it.........

There may also be a 'reservation of benefits' issue too then, as you will be directly benefiting from your gift to your daughter.

WoodruffsDad

I'm getting thoroughly confused!

holly_hobby

WoodruffsDad wrote: »

providing I pay the deposit and the monthly mortgage repayments. I can easily afford to do this and I would "gift" the deposit to her just as that nice Mr. Cameron has urged us parents to do!.

Problems in gifting the deposit and also to be resident in the property - the lender won't accept it due to residency/possession issues - as essentially the gifted deposit, has been given for consideration (exchange of goods, benefit or capital) so isn't a true gift - the consideration in this case being your reqd residency and resulting perceived beneficial ownership of the property off the back of the deposit.

WoodruffsDad wrote: »

My question is, in order to avoid any future problems, should my daughter take out a buy-to-let mortgage and draw up a tenancy agreement with my wife and I or is there a better way?

This would be a regulated buy to let mge, and although there are lenders that will look at this business, the issues remain regarding the "gifted" deposit.

WoodruffsDad wrote: »

I assume that my daughter will be taxed on the "rent" I will pay but will get tax relief on the mortgage interest. Will the two wipe each other out?

Notwithstanding the residency issues, your D has to register for self assessment and declare the net (of permitted deductions) rent for inc tax purposes. (NB - if the rental income is £2,400pa or less - the she may apply to be taxed at source by having HMRC amend her tax code IF she is PAYE).

Yes, mortgage interest is a permitted deduction off gross rental income.

WoodruffsDad wrote: »

Is buy-to-let and tenancy agreement the best way to go? I need to be sure that we're safe in case of any future health problems as the years go by!

Any BTL mge lender will want an AST in place - so this isn't an option.

Hope this helps

Holly

pleasedelete

What happens when she wants to buy her own house? Does she already have a forever home that she lives in?

holly_hobby

00ec25 wrote: »

TAX

ooops forgot to say in earlier post

daughter owns the house but does not live in it, DD will therefore be liable for CGT when she sells it as it is not exempt since it is not her only /main home

CGT is the due when DD evenyauilly sells the property and is charged at 18% or 28% on the amount by which the property has increased in value since she bought it, ie sales price - original cost - personal allowance. eg sells it for 150k bought it for 100k = gain of 50k less allowance 10K = chargeable gain 40K @18% or 28%

remember CGT is her problem not yours and only arises when she eventually sells it

Less costs of improvement (not general decorating and upkeep !), associated costs re purchase and sale, plus any losses from the tax yr.

To be clear - 18% tax is for basic rate tax payers and 28% for higher rate bods - AFTER THE ADDITION OF THE CGT NET GAIN.

If she resides in it as her primary residence, at any period before disposal, then the permitted reliefs and allowances will change in respect of PRR and associated reliefs.

Hope this helps

Holly

00ec25

holly_hobby wrote: »

To be clear - 18% tax is for basic rate tax payers and 28% for higher rate bods.

not quite
the value of the gain is added to your taxable income, this can very easily mean that a basic rate taxpayer will end up paying at least some of the gain at the 28% rate if the gain is big enough and their normal income is in the middling to high end of the basic rate tax band

eg: annual income 20,000, net gain 40,000
total "income" 60,000 less higher rate tax threshold (incl income tax personal allowance) 42,475 = 17,525 payable at 28% and 42475 - 20,000 = 22475 payable at 18% (ie 17525 + 22475 = 40,000 is taxed at both the 18% and 28% rates despite the taxpayer being a basic rate income taxpayer )

holly_hobby

Sorry if unclear from your reading - what is meant by basic rate exposure on the gain obv relates to their banding AFTER the CGT net gain has been added to their annual income !

I didn't think to spell that out in my first post, as I really thought it was so obvious - but did think it needed clarifying what the 18% and 28% figs mentioned previously actually related to (and wasn't meant personally).

Thanks for the added simple calc example too - although in my role, I'm already pretty ok on calculating tax bandings and tax liability .... but always helpful to brush up on it !

Thanks

Holly

PS - have now added an appendum to the orig post for absolute clarity of the reader

WoodruffsDad

This is getting too complicated! It's really very basic: We (wife & I) need a modest home soon. I am too old and too uncreditworthy to get a mortgage on my own merit.

My 31 year old daughter is living with someone, she has NO desire to buy a house to live in and has never owned a property. She is more than happy to take out mortgage and let us live in the property concerned until we 'shuffle off' as long as I pay the deposit and monthly repayments. She has a mortgage to £122,000 agreed in principle. I can find quite a few suitable properties locally for a lot less than that!

I would pay the deposit to HER as a gift. A legal tenancy agreement would be drawn up and my daughter would be happy to disclose the monthly payments from me to her to HMRC as rental income. She would also claim tax relief on the mortgage interest. She would also take out insurance as would we, via SAGA or Help the Aged.

My daughter would find it unlikely, as a first time buyer, to obtain a buy-to-let mortgage.

What is wrong with this? If I can't do it this way then I will have to apply for Council accommodation. Private rental prices locally are obscenely high.

pmlindyloo

I must admit I have become totally confused too!

The way I have read it is as follows:

You will need a 'regulated mortgage' because you are going to live in the property owned by your daughter. (Close relative) What a regulated mortgage is I am not sure! You need to find out. Perhaps only certain people are allowed to arrange them????

There may be a problem with your gifting the deposit as it is, in reality, not a gift because as a condition of that gift you will live in the property. (A gift has no condition with it.)

That is how I have read what has been said.

Probably the people posting are mortgage advisers (?) and are giving you the benefit of their wisdom/knowledge.

In most scenarios parents gift children a deposit but then do not live in the property themselves.

However, you have now said that your daughter may not be able to get a buy to let mortgage (is that right?) If she does let the property (to you or anyone) then she will be in breach of her mortgage agreement.

I would suggest that you get in contact with an independent financial advisor who does mortgages and ask them all about it and go from there.

There is usually a way to sort things out.