Question about parents house

qwerty85

My mum owns her own home outright, but no longer requires the house as it is only her living there now.
I would like to know if it would be possible for her to sign the property over to myself with an agreement that I pay her a fixed monthly sum over the next x years to pay off what it is worth.

Helen1971

If your mum still plans to live in the house even after it's 'signed over' to you, she'll be caught by the gift with reservation rules. In practice, this means that she wouldn't escape inheritance tax and there would be a potential future capital gains tax liability. Not sure what your motive is, but if it were that easy to avoid IHT, everybody would be doing it.

qwerty85

The idea would be that she would move out so that me and my family could move in and live there whilst she rents a smaller place and benefits from some extra income.

Helen1971

Thanks, that clears it up. The problems would be:

1. You won't actually own the house until the full purchase price has changed hands. Are you unable to get a mortgage? If you did, your mum would get the full sale price straight away and you'd owe the debt to the mortgage co, rather than your mum. The house would be yours immediately. Is the aim to save interest?

2. You need to be careful about selling/buying at an undervalue. HMRC would almost certainly challenge such a transaction.

Helen1971

Forgot to add, there is also a strong chance that the payments by instalments you make to your mum whilst she still owns the house would be regarded as rental income, and taxed accordingly.

Biggles

Lots of potential difficulties.

Unless it's a big house, IHT probably isn't your worst problem. The most likely problem will be if she needs residential care some time in the next few years, when the council will deem her to have deliberately deprived herself of capital, and require her to pay full residential care fees.

holly_hobby

Yes, it is entirely possible to have a private loan arrangement - I would suggest this be a legally drafted document to protect the interests of all parties.

Your Mum will have to annually declare to HMRC any interest received on the debt for income tax purposes.

She may wish to place a charge on the proprty until she has recd the full agreed pch price - which will be her protection in the event that you stop paying her ?

If she seeks state assisted long term care then there may be a deprevation of assets issue - if it is considered reasonable to be known that at the time of the transfer she knew such future assistance would be required.

What happens if she passes over before the debt is repaid ? Has this been discussed with any siblings or beneficiaries, or will any os debt be neutralised so you owe nothing further ?

IHT wise, if this is being purchased from her, then its considered a debt to the estate - so PET regs don't come into it (unless there is an arrangement to gift any existing os debt at the time of death).

The above are just a few points for starters .... as you can see, not as straight forward as you may think, but it is possible.

Hope this helps

Holly

qwerty85

Unfortunately not able to get a mortgage so saving on interest would be an added bonus. We would have the property valued first and the amount that I'd be paying off would be equal to the value so shouldn't be any concern over buying it under its value.
My mum isn't particularly old (late 40s) so residential care is most likely on the distant horizon.

...so it wouldn't immediately be put in my name and payments that I make to her could be regarded as rent and taxed. If the payments are regarded as rent, could I potentially claim housing benefit?

holly_hobby

Not if the landlord is a connected person, which your Mum obv is.

The retention of the property would exclude Mum from social housing or housing benefit.

Plus the receipt of rental income from you will have an impact on Mums entitlement to any means tested benefits, and have to be declared to HMRC for inc tax purposes.

H

paddedjohn

How does your mum plan to pay the rent on another place? is she in receipt of any means tested benefits?

Annisele

qwerty85 wrote: »

We would have the property valued first and the amount that I'd be paying off would be equal to the value so shouldn't be any concern over buying it under its value.

Do you mean you'd be paying the current value over a long period, or do you mean you'd pay the current value plus interest?

In figures, say the house is currently worth £100k and you intend to pay over 10 years. If you'd be paying £10k a year, then you'd effectively be buying at an undervalue.