Buying half a house vs gifted deposit

bigoll

holly_hobby wrote: »

It will be nigh on impossible for you to secure any residential mortgage whilst granny remains on the deeds - as has been explained all owners must be party to the mge, in regards to possessionary rights of the lender, The fact that she is 100 (remarkable lady), she is already well in excess of the maximum redemption age of most lenders (75) never mind the entry age !

There are only a couple of lenders I can think of with no upper age limit (national counties being one, which your broker may mention), but given the unusual issues with the enquiry, they may decline to lend.

As mentioned, if granny stays on deeds and you manage to find a lender, this is an unencumbered rermortgage with a simultaneous transfer of equity into your own and GFs name - both of which discount any fee free remortgage deals, and will exposue you and GF to SDLT on the value of the transferred share (if she sells it to you completely then SDLT will be on the full market value not the 350k), to which a tenants in common arrangement could possibly be used to mitigate the exposure, but would mean on grannys passing that there is no automatic tsf of equity to yo & GF, so it would need to be beqeathed via her will (otherwise the laws of intestacy will determine to whom her share goes, which may not be your GF).

Deprevation of assets - relevant only if granny or her reps apply for any state funding assistance to her residential care home fees.

IHT - if sold under value, the gifted element (as she doesn't reside there) will be subject to PET regs.

In my opinion, and given the value of grannys estate, you need the advice of a HNW chartered and tax adviser, plus the assistance of a mge broker whom knows their stuff and understands what you are trying to achieve (whom your chartered adviser may recommend), and of course a solicitor to ensure the wills and arrangements of everyone (including any consideration for a LPA for granny), is proficiently dealt with.

Of course if there are other family members whom may be affected by the proposed arrangement with Granny, it would be beneficial to include them in the loop on this, to save any family disputes at a later stage.

Hope this helps

Holly

Thanks for the lengthy response, Holly. I think my 'option 1' is definitely worth avoiding if possible at is sounds like a minefield. Deprivation of assets won't apply as you say, given the private nature of the care and the total lack of any local authority funding. According to the lawyers IHT is also a non-issue, but I'm going to double check that, along with a lot of other stuff!

Capital gains in this situation is a new one on me so I'll add that to the list as well. I don't imagine it'll apply though (if it does, the government is even more vile than we possibly imagined - taxed to buy a house and taxed to sell it!).

Who'd have thought it would be so hard for a grandmother to sell her mortgage-free house to her own granddaughter for a price she decides on? Everyone knows the whole house-buying process is an expensive farce, but still.....

bigoll

Thrugelmir wrote: »

And is there sufficent funding for the remainder of her life?

There will be if she sells us the house in the next couple of years and she doesn't live to 110+! And if she does, then I'll pay for her out of my own pocket.

Thrugelmir

bigoll wrote: »

Who'd have thought it would be so hard for a grandmother to sell her mortgage-free house to her own granddaughter for a price she decides on?

Maybe someone tried the same tactic a few decades ago to avoid paying tax. Hence the legislation in place............

getmore4less

Thrugelmir wrote: »

Market value.

For obvious reasons.

SDLT is on the consideration not the market value acording to HMRC pages.

http://www.hmrc.gov.uk/sdlt/calculate/value.htm#1

where does it say market vlaue?

what obvious resons do you have in mind.


this link also backs up it is the consideration not the market value where things other than cash are use.

http://www.hmrc.gov.uk/manuals/sdltmanual/sdltm04140.htm
.

holly_hobby

bigoll wrote: »

According to the lawyers IHT is also a non-issue, but I'm going to double check that, along with a lot of other stuff!

Well given at the present time her unencumberd property is alone worth 700k - with her current nil rate band being 325k OR possibly max 650k IF there is 325k unused spousal relief, which the administrators apply to HMRC to tsf to her unused nil rate band on grannys passing) - there certainly is an IHT issue, be that on 375k or 50k (and thats without the value of any additional assets/capital, etc held on death and unexpired PETs). So this is really somewhat confusing that they say IHT is a non-issue (unless they are talking post any TOE exercise and there is already/will be provision in place to settle the IHT bill on death) - otherwise it is a very real issue if you want to retain the value of the estate !!

bigoll wrote: »

Capital gains in this situation is a new one on me so I'll add that to the list as well. I don't imagine it'll apply though (if it does, the government is even more vile than we possibly imagined - taxed to buy a house and taxed to sell it!).

It applies to gain on disposal of a property that is not the individuals primary residence (of which you can only have 1), so as Granny has been in a residential/nursing home for 10 yrs, it could be sucessfully argued by HMRC, that the residential home is her primary residence, not the property we are discussing - hence there may be a CGT bill. (which is charged, after the application of any permitted reliefs and allowances, at 18% for non or basic rate taxpayers, and 28% for higher rate tax payers).

bigoll wrote: »

Who'd have thought it would be so hard for a grandmother to sell her mortgage-free house to her own granddaughter for a price she decides on? Everyone knows the whole house-buying process is an expensive farce, but still.... .

Answer is don't sell it to GF, but bequeath it instead (whilst taking account/making provision for IHT exposure) - if that was put in place would you and GF assist with any care fees, which other than conducting this exercise, would satisfy ? Would this funding be something you are prepared to do in view of the future gain or repayment from the estate ?

Can I also ask what type of guidance and advice you are actually receiving from your own finanical/tax adviser and solicitor re this ? Have they been any use ??

Hope this helps

Holly

tarkytarks

We bought our house last year from OHs parents last year with a "gifted deposit" for a 1/3rd of the value. In your case you apply for a mortgage of £300,000 - tell the bank the value of the property is £700,000, as deposit you will be using £50,000 cash deposit and £350,000 gifted value deposit from granny (which is a theoretical desposit really, it's her way of giving you half the house value now). We used firstdirect, who were fine doing this. As part of the application process his parents parents just wrote a letter saying they were gifting rest of the value of the house (e.g. £350,000) and happy to sign it over. You'll need granny to do the same thing. Will inheritance tax be involved evenutally - that should be something you check with your solicitor about as part of the sale.

bigoll

holly_hobby wrote: »

Well given at the present time her unencumberd property is alone worth 700k - with her current nil rate band being 325k OR possibly max 650k IF there is 325k unused spousal relief, which the administrators apply to HMRC to tsf to her unused nil rate band on grannys passing) - there certainly is an IHT issue, be that on 375k or 50k (and thats without the value of any additional assets/capital, etc held on death and unexpired PETs). So this is really somewhat confusing that they say IHT is a non-issue (unless they are talking post any TOE exercise and there is already/will be provision in place to settle the IHT bill on death) - otherwise it is a very real issue if you want to retain the value of the estate !!



It applies to gain on disposal of a property that is not the individuals primary residence (of which you can only have 1), so as Granny has been in a residential/nursing home for 10 yrs, it could be sucessfully argued by HMRC, that the residential home is her primary residence, not the property we are discussing - hence there may be a CGT bill. (which is charged, after the application of any permitted reliefs and allowances, at 18% for non or basic rate taxpayers, and 28% for higher rate tax payers).



Answer is don't sell it to GF, but bequeath it instead (whilst taking account/making provision for IHT exposure) - if that was put in place would you and GF assist with any care fees, which other than conducting this exercise, would satisfy ? Would this funding be something you are prepared to do in view of the future gain or repayment from the estate ?

Can I also ask what type of guidance and advice you are actually receiving from your own finanical/tax adviser and solicitor re this ? Have they been any use ??

Hope this helps

Holly

£700k is the maximum we estimate the house to be worth, so a conservative figure used at this point. We have a survey and valuation taking place next week, where I imagine the price to fall below £650k, which is the combined threshold she is eligible to. Having no other assets by the end of this year (when the money runs out), IHT shouldn't be an issue. Anyway, this is one for her lawyers to double confirm.

There may be a CGT bill, but I'd suspect it's unlikely - elderly people moving to care homes but retaining the house they've owned for 70 years (in fact, granddad designed and built it) is likely fairly common. But again, it's one for the lawyers to confirm.

Bequeathing is not an option, given the enormous cost of the care home; it would be cheaper for us to get a £700k mortgage than pay those fees! Besides, it's her house and her tied up capital so she'll do whatever she wants to free that up - if not selling to us, selling to someone else for more.

Early days in the whole process at the moment, so no professionals yet engaged but meetings with lawyers in the next fortnight. We're sorting out the value of the place first so we have some figures to play with.

holly_hobby

bigoll wrote: »

£700k is the maximum we estimate the house to be worth, so a conservative figure used at this point. We have a survey and valuation taking place next week, where I imagine the price to fall below £650k, which is the combined threshold she is eligible to. Having no other assets by the end of this year (when the money runs out), IHT shouldn't be an issue. Anyway, this is one for her lawyers to double confirm.

Assets aren't just property and capital, but all assets/chattles such as jewellery, artwork, stocks and shares, etc, etc...

bigoll wrote: »

There may be a CGT bill, but I'd suspect it's unlikely - elderly people moving to care homes but retaining the house they've owned for 70 years (in fact, granddad designed and built it) is likely fairly common. But again, it's one for the lawyers to confirm.

It is however completely likely and probable in this case, as she has been in a care home 10 yrs (after 3 yrs HMRC assess the dwelling under 2nd property rules) and (I would guess) the property has increased in value by 10k + whilst she has been in care (which are the pivotal factors for the property to be exposed to CGT in such cases) - so there is actually a very real prospect of CGT here (which is liable even if sold to actually fund care home residency which has caused her absence from the property).

The mitigation (as the property will not have been let pre sale ), is a combinatino of her annual unsued personal allowance £10,600 for 2012/13 tax yr, the last 36 months of ownership, plus the period it was her primary residence and any cgt losses (from prev disposal of assets and if HMRC have been advised within the regulated time frame for notification to permit carry foward).

bigoll wrote: »

Bequeathing is not an option, given the enormous cost of the care home; it would be cheaper for us to get a £700k mortgage than pay those fees! Besides, it's her house and her tied up capital so she'll do whatever she wants to free that up - if not selling to us, selling to someone else for more.

Ok so the idea to sell and partially gift to GF, is actually on the basis that granny want 350k capital for NH fees .... seems excessive at 100 yrs old, but obv this is a fig she feels is reqd.

bigoll wrote: »

Early days in the whole process at the moment, so no professionals yet engaged but meetings with lawyers in the next fortnight. We're sorting out the value of the place first so we have some figures to play with.

Oh I thought you said it was the lawyers (solicitor) had told you there are no IHT issues ?

Confused .. anyhoo ... advice recd should largely mirror whats been given within this thread, you really need a tax adviser together with legal and financial professionals.

Hope this helps your GF and her granny

Holly