Parent passing mortgaged house to child

GooseFeet

Hi,

My mother has had permanent residence in a house for 20 years with a market value of £180,000 and which still has an outstanding mortgage of £70,000.

A couple of years ago she and her sister inherited their parents house, which she now wants to move to from her current house.

Scenario 1: Is it possible that she could gift me her portion of the original house and at the same time I would then take out a new mortgage to cover the outstanding £70,000 on her current mortgage?

Scenario 2: Can I pay off her existing mortgage with cash and she gifts me the house in full?

Are there any inheritance or capital gains tax etc pitfalls to be aware of?

Thank you.

PasturesNew

Forget the fancy wording.... your mother can sell her house to you at whatever price she likes.... so long as it pays off her current mortgage, nobody is after her for debts, any siblings etc are OK/informed etc....

Other bit ... yes, others will explain.

Thrugelmir

Whether you use a mortgage or pay cash to purchase makes no difference.

Inheritance tax threshold is £325k. So if her estate were to exceed this value. Take advice.

getmore4less

Is she buying out the sister? or is something else happening.

IHT : nill rate band £325k or potentialy upto £650k if there is a transferable spouse nillrate band.

current property assets look to be are £110k + 1/2 the inherited house what else does she have.


Also there looks to be 2 years of non residence in the inherited house that will require CGT assesments should it be disposed of in the future(other than through death). As will the sisters bit if she buys her sister out.


Once you work out the cash flow you can see what gifts may be involved.

holly_hobby

GooseFeet wrote: »

Hi,

My mother has had permanent residence in a house for 20 years with a market value of £180,000 and which still has an outstanding mortgage of £70,000.

A couple of years ago she and her sister inherited their parents house, which she now wants to move to from her current house.

Perfectly ok for her to do this in principle.

GooseFeet wrote: »

Scenario 1: Is it possible that she could gift me her portion of the original house and at the same time I would then take out a new mortgage to cover the outstanding £70,000 on her current mortgage?

Ok, essentially she would be selling the property to you, for 70k (ie equal to the os mortgage).

However, in order to use the balance of/gifted equity as a deposit, this will be presented to the lender as a family/under value purchase - which means that the ltv will be based on 70k/180k.

Although the value for mge purposes will be based on 180k, SDLT should be based on the actual physical pch price of 70k ( ie nil liability) which is equal to the mortgage interest effectively being transferred. (there is often confusion re discounted sales, but it is accurate the SDLT is charged on the pch price/transfer of mge)

Your conveyencer will address this with you, but refer to HMRC for more guidance if reqd - http://www.hmrc.gov.uk/sdlt/calculate/transfer-ownership.htm

GooseFeet wrote: »

Scenario 2: Can I pay off her existing mortgage with cash and she gifts me the house in full?

Yes of course - subject to money laundering regs.

You would then proceed with switching ownership from Mum to You with Land Reg. (recommend a conveyencer to ensure all completed correctly).

GooseFeet wrote: »

Are there any inheritance or capital gains tax etc pitfalls to be aware of?

CGT
As it stands, no exposure for Mum, as the property is her primary residence.

IF the transfer will be delayed from her actual moving out, there may be exposure to CGT if the effective sale to you occurs in excess of 36 mths from her vacation of the property.

Inheritance tax.

If she dies within 7 yrs of gifting you the 110k equity in the property, this will be included within her estate for the purposes of IHT (as an unexpired PET, 107k if her annual 3k gift allowance is utilised at the time of the gift).

Her estate will only be exposed to IHT IF its net value (inc any unexpired PETs), exceeds her available nil rate band (currently 325K) at the time of her death, which may be uplifted to a MAX of 650k (current bands), if there is any unused (decd) spousal nil rate band remaining. This may be utilised if applied for transfer by her administrators, in dealing with her estate.

A decent mortgae broker will find this a super easy enquiry, and (if not an IFA), will refer you to a suitable adviser re any IHT preparations that need to be addressed as part of proficient estate planning measures.

There will be no CGT liability on the inherited house, if when sold it is her primary residence. NB - this may be negated if she goes into residential care and is vacant from the property for more than 3 yrs (as in that situation it will be treated under 2nd property regs by HMRC), so bare this in mind.

NB - Selling her current property for under value, may cause deprevation of asset issues IF she applies for MT state funded care and it is assessed that she was aware of the need when the tsf took place. (just thought worth a mention)

Hope this helps

Holly