Son's giving us £20k for flat deposit - can we include him on mortgage?

krishijones

Me and my wife are buying a 3 bed flat for our son, for him to share with 2 other friends. To avoid HMO issues, he needs to be a landlord on the flat, so he could be classed as resident-landlord allowing him to rent 2 other rooms without the need for HMO. Since he's not earning, there's no way he can get a mortgage on his name. So, we have to get one, but we were thinking if it was possible for us to add his name on the mortgage too, may be as a joint mortgage. He has £20k in saving (from his work over the years) that he wants to contribute towards the deposit for this flat purchase. Because he's contributing significantly, could his name be added on the mortgage, so he's ONE of the landlords and us being the other landlords?

Or, is there any other way in getting him to be a landlord, or his name on the mortgage?

holly_hobby

Yes, this will be a residential mge application - as your Son will be both joint mortgagor and resident in the dwelling.

Upto 4 individuals can be party to the mge, with obv affordability at this stage, based on you and your Spouse's income (net of any existing commitments i.e mge etc).

The max mortgage term at application, will be determined by the oldest of you reaching 75 first (if income during retirement and upto this point is satisfactory) - this is regardless of whether in the future Son will become the sole owner (ie you and spouse remove your liabity and ownership under a transfer of equity) - as the lender is basing their affordability checks on the current situation, not what may be in the future.

As owner occupier, he will be able to have lodgers, with tax benefits to you under the rent a room scheme - check this out on the .gov site.

Of course anything in excess of the rent a room tax benefits, has to be declared for tax purposes.

Son may want to draw up a deed of trust re the 20k capital injection for your combined ownership.

The above are the most salient and basic points, and should get you started.

Hope this helps

Holly

krishijones

holly_hobby wrote: »

Yes, this will be a residential mge application - as your Son will be both joint mortgagor and resident in the dwelling.

Upto 4 individuals can be party to the mge, with obv affordability at this stage, based on you and your Spouse's income (net of any existing commitments i.e mge etc).

The max mortgage term at application, will be determined by the oldest of you reaching 75 first (if income during retirement and upto this point is satisfactory) - this is regardless of whether in the future Son will become the sole owner (ie you and spouse remove your liabity and ownership under a transfer of equity) - as the lender is basing their affordability checks on the current situation, not what may be in the future.

As owner occupier, he will be able to have lodgers, with tax benefits to you under the rent a room scheme - check this out on the .gov site.

Of course anything in excess of the rent a room tax benefits, has to be declared for tax purposes.

Son may want to draw up a deed of trust re the 20k capital injection for your combined ownership.

The above are the most salient and basic points, and should get you started.

Hope this helps

Holly

Thank you, you are amazing! I spent the whole of today looking for information on this. No wonder I love MSE and am always grateful to people like yourself.

Sorry but one thing again, just to clear myself: Would the bank not have any problem putting my son as a joint mortgagor - he has no income (being at uni) and all he's doing is putting £20k for the deposit. So are you agreeing that the bank would allow him to be one of the mortgagor just coz he's putting a deposit, even though not showing any income?

Also, provided he can be one of the owners/mortgagors, how do we go about ensuring the tax is paid only by him, without affecting us? (As in, he has no earning, so we basically won't pay any tax on rent collected...but if its shared ownerships, do I have to pay tax from my side because its a shared property?)


Thanks again :-)

holly_hobby

krishijones wrote: »

Sorry but one thing again, just to clear myself: Would the bank not have any problem putting my son as a joint mortgagor - he has no income (being at uni) and all he's doing is putting £20k for the deposit. So are you agreeing that the bank would allow him to be one of the mortgagor just coz he's putting a deposit, even though not showing any income?

Absolutely, if you think about a married couple where only the hubby works, its the same principle really - as long as the permitted income (in this case being simple as its just a 2 way assessment), is sufficient - although all mortgagors are responsible for the mge debt and its repyament.

Indeed, the fact that he is contributing 20k deposit and will be resident, actually means that this is the only way the appliction will work (due to residency rights of your son as a result of the 20k non-gifted deposit, and the possessionary issues it would cause to the lender if he WASN'T a joint mortgagor).

As this will not be your own residence, I would say that it will be classed and assessed under 2nd property criteria of the lender - meaning that you are looking for a min 15% deposit (whilst some lenders restrict to 75%).

krishijones wrote: »

Also, provided he can be one of the owners/mortgagors, how do we go about ensuring the tax is paid only by him, without affecting us? (As in, he has no earning, so we basically won't pay any tax on rent collected...but if its shared ownerships, do I have to pay tax from my side because its a shared property?)

Well to make it water tight and absolutely crystal clear for assessment, I would effect the purchase and have the deeds under a Tenants In Common (TIC) arrangement - whereby the legal division of beneficial ownership/equity can be unequally apportioned between the owners - with any rental income split in the same ratio ie - 98% son, 1% Mum, 1% Dad.

One thing to note with a TIC arrangement, is that there is no automatic tsf of equity to surviving owners on the death of 1, and the value of their share forms part of the estate (only a real issue if the value of their net estate is likely to be exposed to IHT). So the decds share would be distributed as per any will bequest, or intestacy law( if no valid will at time of death). This differs to a Joint Tenancy (JT) - where the property is jointly held by all owners, with automatic tsf of ownership to survivors on the death of a fellow owner - meaning that it does not form part of the decds estate and cannot be bequested to anyone outside of the fellow owners.

In respect of rental income, where the owners are non married/civil partners - it actually doesn't matter how the beneficial and legal ownwership is held, TIC or JT - as basically you just record and report receipt of rental income to HMRC , as per its actual division ..

Your situation is a bit of anomlie becuase of we have a married couple PLUS A N Other in the mix - so to ensure the division of rental income is clear for HMRC (given the married status of 2 of the owners), I would effect under a TIC set up, with you and spouse also completing and submitting HMRC form 17 to top and tail it - http://www.hmrc.gov.uk/forms/form17.pdf.

To get a better idea visit the HMRC website, and also have a chat with your financial/tax adviser and even HMRC themselves ..... .

Hope this helps get the ball rolling

Holly

krishijones

holly_hobby wrote: »

Absolutely, if you think about a married couple where only the hubby works, its the same principle really - as long as the permitted income (in this case being simple as its just a 2 way assessment), is sufficient - although all mortgagors are responsible for the mge debt and its repyament.

Indeed, the fact that he is contributing 20k deposit and will be resident, actually means that this is the only way the appliction will work (due to residency rights of your son as a result of the 20k non-gifted deposit, and the possessionary issues it would cause to the lender if he WASN'T a joint mortgagor).

As this will not be your own residence, I would say that it will be classed and assessed under 2nd property criteria of the lender - meaning that you are looking for a min 15% deposit (whilst some lenders restrict to 75%).



Well to make it water tight and absolutely crystal clear for assessment, I would effect the purchase and have the deeds under a Tenants In Common (TIC) arrangement - whereby the legal division of beneficial ownership/equity can be unequally apportioned between the owners - with any rental income split in the same ratio ie - 98% son, 1% Mum, 1% Dad.

One thing to note with a TIC arrangement, is that there is no automatic tsf of equity to surviving owners on the death of 1, and the value of their share forms part of the estate (only a real issue if the value of their net estate is likely to be exposed to IHT). So the decds share would be distributed as per any will bequest, or intestacy law( if no valid will at time of death). This differs to a Joint Tenancy (JT) - where the property is jointly held by all owners, with automatic tsf of ownership to survivors on the death of a fellow owner - meaning that it does not form part of the decds estate and cannot be bequested to anyone outside of the fellow owners.

In respect of rental income, where the owners are non married/civil partners - it actually doesn't matter how the beneficial and legal ownwership is held, TIC or JT - as basically you just record and report receipt of rental income to HMRC , as per its actual division ..

Your situation is a bit of anomlie becuase of we have a married couple PLUS A N Other in the mix - so to ensure the division of rental income is clear for HMRC (given the married status of 2 of the owners), I would effect under a TIC set up, with you and spouse also completing and submitting HMRC form 17 to top and tail it - http://www.hmrc.gov.uk/forms/form17.pdf.

To get a better idea visit the HMRC website, and also have a chat with your financial/tax adviser and even HMRC themselves ..... .

Hope this helps get the ball rolling

Holly

You are amazing Holly, thank you so much for clarifying the issue. I have saved what you've said so I can go back and look on it. Thanks a lot again. I shall be bothering with you some questions if I get stuck somewhere, if thats ok And thanks for introducing the word "snookered" to me - loved it!