Buy to Let for my mum

gmad1968

Hi all,
this is my first post, so I hope that somebody can offer some help? My mum moved back here from a European country last year, having sold her house. She does not have enough equity to buy a property here outright, but she has a significant deposit to put down. Unfortunately she is over 75, so she cant apply for a mortgage.

My mum has spoken to my sister and I and she is happy to "gift" us the deposit (in lieu of inheritance), and my sister and I will apply for a buy to let morgage, approx £60k (loan to value of approximately 33%loan to 66% deposit). She has a comfortable pension, but she could halve her rent if my sister and I take out the mortgage, which will allow her to have a few more luxuries in her life. My questions are these:

• Will my sister and i be liable for tax on the "gift"?
• Are commercial mortgages the only option (given that I have seen that most BtL mortgages don't allow family members to lease from them)?
• We obviously only want mum to cover the cost of the repayment, but are there tax implications for us?

Any help appreciated

Golfmad1968!

McKneff

Theres a lot more to it than that really and I would suggest seeing a professional.

Unfortunately in England you cant just 'give your money away, willy nilly' even if it is yours.

First of all, I would google 'deprivation of assets'
What if your mum has to go into care,
She would be assessed as if she still had the money that she has given away. Its a minefield to be honest. And its all 'what ifs'

holly_hobby

There is no tax on the recipient of a gift, only to the donor's estate, IF they die within 7 yrs of the gift, and IF their NET (of liabilities) exceeds the nil rate IHT band (currently 325k per individual).

So no, there is no tax liability to you and your sister.

Deprevation of assets would be applicable if she sought any means tested benefits reqd as a result of the donation. Care home related, IF it was proven that she knew or it would be reasonable to assume, she would have a future need for care, then yes DOA could be tested and cited by the LA, if any application for state funded assistance was made by her or her representatives.

Re purchasing the BTL property ....

If purchasing a property for family to rent - you would be looking at a regulated buy to let arrangement, and whilst not widely marketed, there are lenders whom consider this type of business. However, as regulated borrowing, the affordability is typically treated as a 2nd mortgage (ie on your earned income), so its not rental income based as with a typical BTl (unregulated) arrangement.

There are other issues with the gift/source of deposit ....

Notwithstanding the info below, it will be classed as a gift with reservation (as she will continue to benefit from it, as a resident in the property it helped to purchase, post donation), and therefore it will not qualify for PET regs during this period of occupation - meaning it MAY be included in her estate on death for IHT purposes (depending upon whether she is still resident or the elapsed period between her vacation of the property and her death).

Moving forward ... main issue is gifted deposits aren't permitted by BTL lenders (regulated borrowing or not).

Another sticking issue is the fact that Mum is donating monies to specifically provide a deposit for a property that she will reside in but won't be a mortgagor, and notwithstanding the gifted issue as a whole, this WILL cause an issue with the majority of lenders re the possessionary issues it raises.

This is due to the legal effect the arrangement has regarding possessionary interest (ie - provision of the monetary deposit is in direct exchange for the Donor's residency in the property), which may serve to prevent the lender successfully securing a future possession order following default (ie non payment of mortgage) .....

It may be worth knowing, if Mum has sufficient income, and its only her age that is a factor, that there is a building society whom (affordability sufficient) don't have an upper age limit for the application or redemption of residential mortgages, so Mum being 75yrs old may not be a complete dealbreaker - as I say acceptable income and source will be the issue.

Hope this helps

Holly

McKneff

Brilliant post there Holly:T

holly_hobby

McKneff wrote: »

Brilliant post there Holly:T

Ah, thanks Buddy x

H

gmad1968

Wow Holly, thank you so much. That is an amazingly thorough answer! Do mortgage calculators take into account the age of applicants, as that seems the less complex route to go down. All we want is for mum to have a house that is hers and that reduces her outgoings. We were told we might be able to get a commercial mortgage, with interest of 6.25%, which is reasonable for these type of lenders...

Thrugelmir

We obviously only want mum to cover the cost of the repayment, but are there tax implications for us?

The repayment will be viewed as income in your hands. So the net profit from renting the property will be taxable.

holly_hobby

A BTL is a semi-commercial mortgage.

As discussed earlier, Mum can't be party to the BTL mortgage (ie sourced with the intention to let to 3rd parties) AND reside in the property regardless of her age.

You could source a regulated BTL mortgage for Mum (with her NOT party to it), but you can't use a gifted deposit from her due to the reasons I have noted. But you could save up your own deposit of 25% and pursue this avenue (subject to the affordability under 2nd property regs, which is usually on the applicants earned income).

Your best bet if you want an imminent purchase, and if Mum has sufficient income and wants her legal ownership to be recognised, is to source the BSociety I have discussed whom don't have an upper age limit on application or redemption (as most do with 75 yrs as the cut off).

Speak to a mge broker whom will assist.

Hope this helps

Holly

Hasbeen

McKneff wrote: »

Theres a lot more to it than that really and I would suggest seeing a professional.

Unfortunately in England you cant just 'give your money away, willy nilly' even if it is yours.

First of all, I would google 'deprivation of assets'
What if your mum has to go into care,
She would be assessed as if she still had the money that she has given away. Its a minefield to be honest. And its all 'what ifs'

Is this England law or Scottish law?

McKneff

Well, I presumed the OP was in England which is what I based my answer on. I would think the laws are possibly different in Scotland etc.

Maybe I shouldnt have presumed.

I did end my post withe 'what if' I suppose 'what if I live is Scotland' could be one of the 'what ifs'

kingstreet

Despite the free personal care element of social care in Scotland, deprivation of assets is still relevant;-

http://www.careinfoscotland.co.uk/how-do-i-pay-for-care/paying-care-home-fees/deprivation-of-capital.aspx