Parents purchasing on our behalf

burgiking

Did a quick search for 'parents buying' but nothing came up that was identical.

I'd like some advice on renting from my parent's potential new house. The tax affects and whether it is a sound idea.

My 'rents have just retired and realized they want to release their assets to their children (me and my sister). One house is shared between me and my sister (50/50 split on sale value)

My parents have offered to purchase me a house in a location I want in order to avoid the new house schemes & undesirable location of cheaper houses (got a kid now).

If they mortgage a house and rent is paid by both me and my partner, so we'll be paying off our own mortgage and they'd have another retirement income.

Are there any problems with this scenario? And are there any better ways of doing this?

Thanks for your time

BitterAndTwisted

Would retired people be able to raise a mortgage at their age?

What would be simpler and more straightforward is that they gift you cash, then you use that sum as a deposit and buy in your own names.

Annisele

The rent you pay will be taxable (although your parents might be able to offset that against the mortgage interest and other costs).

The people who own the property won't be living in it - so it'll be subject to capital gains tax on sale.

Your parents would need a regulated buy-to-let mortgage (not just a BTL) because you'd be a close relative living in their BTL house.

If you need to claim benefits, you'll struggle to show you don't have a contrived tenancy (that may not be an actual problem depending on your circumstances and the terms of your agreement).

As B&T says - wouldn't it be easier for them to just give you cash?

Yorkie1

As your parents would be LLs, they need to comply with all the rules relating to being a LL:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

burgiking

:T that's a rapid response.

I think the gifting of cash would be fantastic as well but I believe they still want a return on their investment. (do you get taxed off large sums of cash gifts?).

Could they not gift the house to me before they... erm 'pass-away'.

And if the rent was in my partner's surname would they still be concerned with me being a close living relative?

Thank you guys, can now talk to my folks like I know what I'm talking about

pip6789

hi,
We are researching exactly this and so far have only came up with one option and that is a ''cash gift'' to pay a big deposit and for the rest of the mortgage to be in our name. One way to look at it is that if your parents had say 20k to invest in an isa or whatever. If they loaned it to you as a cash investment and you could pay it back with interest that is slightly higher than the interest rate that could be gained from a savings account.

I will keep watching this thread because we are trying to do the same thing as we had to go bankrupt 3yrs ago. We cannot get a mortgage and the parents helping is the only way. But how is the big question ??

00ec25

burgiking wrote: »

:T that's a rapid response.

I think the gifting of cash would be fantastic as well but I believe they still want a return on their investment. (do you get taxed off large sums of cash gifts?). no tax payable on gifts either for the donor or the recipient. If parents receive rent then obviously they will pay tax on that income

Could they not gift the house to me before they... erm 'pass-away'. Yes they could - but that would be a gift between "connected persons" so they would immediately incur CGT based on the open market value at the time of the gift

And if the rent was in my partner's surname would they still be concerned with me being a close living relative? You would still be living there so what do you think?

Thank you guys, can now talk to my folks like I know what I'm talking about

see above, if parents want to pass money down the generations to you then the only sure way to do it is by a cash lump sum gift, if they buy a property and retain an interest in it then they will be taxed on it eventually, either through CGT or IHT

Annisele

burgiking wrote: »

My 'rents have just retired and realized they want to release their assets to their children (me and my sister).

burgiking wrote: »

I think the gifting of cash would be fantastic as well but I believe they still want a return on their investment. (do you get taxed off large sums of cash gifts?).

Hmmm. I don't think that makes sense. Do they want to "release their assets to their children", or receive a "return on their investment"? The first is a gift; the second is a commercial (or semi-commercial) transaction. If your parents want a return on their investment, it's likely they can get it elsewhere in a much less complicated way.

If they buy the house now and then give it to you later, they will be liable to capital gains tax. If they give to you in their will (or die within seven years of giving it to you), there might be a double whammy of capital gains tax and inheritance tax (depending on many things including the size of their overall estate).

As to the taxing of a cash gift - no, we don't have gift tax in this country. It might be subject to inheritance tax (again, depending on the overall size of their estate, and on whether they died within seven years of making the gift).

ognum

This is just my opinion

You parents cannot have this two ways if they want to give you some or all the money for a house and have no tax implication (CGT, IHT or IT) then it has to be a gift without strings and with no repayment schedule, yes, a gift.
They would also need to live 7 years for some IHT not to be payable from their estate, not by you but by your parents estate.

If they want to keep some contact with the cash, it is not a gift, it remains part of their estate. If you pay rent then they are your landlords and tax is payable on your rent.

They need some financial advice or there could be problems when you come to unravel this if or when your parents die.