Buying in to second home.

GeckoLI

This is rather complicated so please bear with me.

I currently own a flat, of which I have a £150000 mortgage on the property. I have 1 year left on this mortgage which is fixed rate with Halifax.

I am soon moving in to a new property with my partner in joint name. We will have about a £150000 mortgage on this property. The mortgage is agreed and it is moving ahead.

I initially thought about renting the original property rather than selling. However, I would prefer my mother in law to buy in to the property (by paying off £100k of the existing mortgage). We would then lower the repayments and she would then live in the property on her own. We are prepared to pay any early repayment charges.

The mother in law is in her early 50s and currently does not have a mortgage. She works full time.

A few key questions:

• Can MIL just gift me the money, which I will then use to repay the mortgage allowing her to live in the flat and pay me 'rent'. Should the flat sell, we would divide the proceeds up appropriately. Would a solicitor be prepared to draw up a deed of trust to this affect? Would there be tax implications if I were to sell the home and give her back her money + profit?
• Could I simply put her on the mortgage deed and allow her to pay off some of the mortgage, then move in? Would the bank have a problem with someone of her age being on the mortgage?
• If I were to wait until next year and remortgage, would the bank allow her to be on the mortgage and could I pay off her portion in the meantime? Would there be tax implications?

Thanks a lot,


Rob.

P.S My mortgage adviser, the Halifax and my local branch have all separately suggested the three above options. I am utterly confused and stressed out.

holly_hobby

GeckoLI wrote: »

I currently own a flat, of which I have a £150000 mortgage on the property. I have 1 year left on this mortgage which is fixed rate with Halifax.

Is that 1 yr left on the whole mge term or the fixed rate product itself ?

GeckoLI wrote: »

I initially thought about renting the original property rather than selling. However, I would prefer my mother in law to buy in to the property (by paying off £100k of the existing mortgage). We would then lower the repayments and she would then live in the property on her own. We are prepared to pay any early repayment charges.

The mother in law is in her early 50s and currently does not have a mortgage. She works full time.

A few key questions:

Can MIL just gift me the money, which I will then use to repay the mortgage allowing her to live in the flat and pay me 'rent'. Should the flat sell, we would divide the proceeds up appropriately. Would a solicitor be prepared to draw up a deed of trust to this affect? Would there be tax implications if I were to sell the home and give her back her money + profit?

Ok - you seek consent to let from your lender.

MIL gives you 100k - you reduce the mge by 100k (but the mge remains in your name only) - giving her no legal protection for her capital should the lender seek a possession order. You will suffer an ERC (effectively a lump sum reduction penalty) whilst within your fixed rate period - so bear that in mind.

Your MIL moves in, and pays you rent - you must declare the (net) rent to HMRC for income tax purposes.

If MILs estate is likely to incur IHT charges, then she MUST pay you the market rent, or she will fall foul of POAT (pre owned asset tax) HMRC regs.

Trust deed would protect her investment on sale.

Tax on sale, if you sell within 36 mths of vacation there is no CGT liability at all on any gain.

If you sell in excess of 36 mths from moving, out your gain will be exposed to CGT, BUT will be mitigated by PRR relief, last 36 mths of ownership,lettings relief upto 40k, and your annual unused CGT exemption.

• GeckoLI wrote: »

  Could I simply put her on the mortgage deed and allow her to pay off some of the mortgage, then move in? Would the bank have a problem with someone of her age being on the mortgage?

Capital injection, no issues from the lender, other than any ERC charges. Her going onto the deeds and mge, the Lender would have to agree, inc full status checks on her, with the max term restricted by her age (75 yrs with Halifax), but older with a couple of other lenders.

GeckoLI wrote: »

If I were to wait until next year and remortgage, would the bank allow her to be on the mortgage and could I pay off her portion in the meantime? Would there be tax implications?

Answered above.


Hope this helps

Holly