Insolvency Indemnity Insurance

Tearful1

My conveyancer has said they will get a quote for Insolvency Indemnity Insurance for me. I'm not sure if I need it given the situation, so would appreciate anyone who knows about these policies help.

We are purchasing a house for £300,000. The mortgage is £210,000 and our savings are used for the difference (£90,000). My parents have Gifted us £4000 which is going towards the Stamp Duty (we were originally going to buy a house under £250,000 and then move in 5years but parents are gifting us some of the Stamp Duty difference so we can buy our 'forever home'). The rest of the legal fees, Stamp Duty etc are being paid for by us.

We told the conveyancer this and my parents have proven their I.D, shown bank statements, written the Gift letter etc. So do we really need the Insolvency Indemnity Insurance even though the money isnt being used for the actual house purchase?

antrobus

As far as I'm aware, s339 of the Insolvency Act 1986 dictates that if an "individual enters into a transaction with a person at an undervalue" etc and subsequently becomes bankrupt, then a court can effectively reverse that transaction. So, in circumstances where (for example) someone's parents sold a property to one of their children at a discount, a court could order the child to repay the discount at a later date should the parents go bankrupt.

I'm not even sure that s339 would apply to a gift of this nature, and even if it did, there's only a risk if you envisage your parents going bankrupt, and even then you're only at risk of £4k. So I don't think you need Insolvency Indemnity Insurance.

Tancred

Sounds all like double Dutch to me. If your parents give you a sum surely the only concern is in relation to inheritance tax, is it not? I believe there is a rule whereby if the parent giving the gift dies within 7 years then the amount gifted becomes liable for inheritance tax if above £3k.

kingstreet

Is this a requirement of the lender?

If it is, the lender is trying to protect itself against the transaction being reversed in the event of insolvency.

kingstreet

Tancred wrote: »

Sounds all like double Dutch to me

Think someone on the verge of bankruptcy giving money away to relatives to protect it from seizure by creditors.

Tearful1

kingstreet wrote: »

Is this a requirement of the lender?

If it is, the lender is trying to protect itself against the transaction being reversed in the event of insolvency.

I haven't been told if this is a requirement of the lender (I havent received any documents from them requesting this, nor is it written as a condition of the mortgage in the small print). I would understand if it was a Gift towards the deposit of house and the risk of parents going Bankrupt etc (not that there is any risk of that in reality), but as it is being Gifted to pay Stamp Duty not sure whether it is really required.

kingstreet

You are receiving money towards the transaction as a whole. A lender won't differentiate between the uses to which the funds might be put.

On completion day, the solicitor has all the money, together, in its clients' account for onward transmission to HMRC, the vendor's solicitor etc

It may not be mentioned on the offer, but it could be in the lender's instructions to the solicitor or in the lender's standard CML Handbook conditions.

Ask the solicitor for confirmation.