Financial/legal implications of a 'personal' mortgage

marky_p

Looking for some advice, I'll try and outline what I'm after as clearly as possible!

My grandparents own a property worth approx £100k that they are looking to sell to fund their retirement.

I live in London and simply can't afford to buy property. I do have around £15k in savings.

Would it be possible, with their agreement obviously, to pay my grandparents £15k as a deposit on their property. I could then let out the property for approx £500 a month. This money could go directly to them but as a payment from me for the remainder of the value of the property.

If they required I could pay an additional £500 a month on top giving them a decent monthly income, but that's not really relevant.

Obviously this would benefit me in that I would 'own' or part own a property and could be paying off a decent chunk, without the need to go for a bank for a mortgage. My grandparents would also benefit in that they'd have a decent chunk of money upfront and a regular income far greater than they currently have (the property is currently rented out to a family member for far below market value).

What I would like to know is, what are the legal implications of this? What steps would need to be taken to make this happen? Is it even possible to do this? (eg are their inheritance tax implications that may need to be taken into account, my grandparents are in their mid-80s).

Thanks for any help!

Annisele

marky_p wrote: »

My grandparents would also benefit in that they'd have a decent chunk of money upfront and a regular income far greater than they currently have (the property is currently rented out to a family member for far below market value).

It looks to me as though it would be easier all around for your grandparents to keep the property and let it out at a market rent. But presumably there's some reason they haven't done that - I guess because they're happy to have this family member living in their house at below market rent.

What would happen to that person after you bought the property? Would your grandparents be happy for you to evict them?

In principle, I think your scheme (or a slight variation on it) is possible. But it might not be very tax efficient - you'd have to pay tax on the income you received from the tenants, and then your grandparents would have to pay tax on the loan interest they received from you. You'll also be liable for capital gains tax on the property.

holly_hobby

If I have this right, you want to ....

Purchase a property worth 100k from your grandparents, with an initial upfront payment of 15k.

The property is not your grandparents primary residence, it being currently let to a family member.

You intend, post completion, to rent the property out at a rental price of £500pm.

You intend to forward this to your grandparents each month as a continuous repayment off the outstanding 85k mge, until the loan is repaid.

Points of consideration


# Grand parents will be liable to CGT on any gain (difference between acquisiton price and sale price, less permitted deductions/reliefs/allowances, and this will (as you are connected persons) be based on the market value of the property. So this exercise may well caust them a capital gains bill.

# If there is any element of interest re the 85k private loan arrangement, this must be declared by grandparents under annual self assessment, whereby (depending on other factors) it may be liable to tax.

# The monthly payments you make to them £500 or whatever, will have to be delcared to DWP if they are in reciept of any means tested benefits, or will affect any future entitlement to such benefits.

# If grandparents (GPs) names are to be taken completely off the property, and they later seek any state funded long term care, this exercise of you just providing 15k in exchange for a 100k property, will be cited as depriviation of assets (if loan repayments aren't contractually arranged) and any entitlement assessment will be conducted as if the transfer never occurred. Of course if this is formally and legally recorded, the monthly income from you will be declared and assessed as discussed above.

# What happens to the os balance upon your GPs death ?

# Will the remaining loan be written off or how do they want it played ?

#If their names are to be left on the deeds, the deeds should be on a joint tenancy basis, to ensure automatic transfer to surviving owners on death of another.

# With regards to you pre-deceasing them, what happens to the arrangement ?

# You will be liable to tax on the net (of permitted deductions) rental income, reporting via annual self assessment if the annual rent exceeds £2400 (otherwise it can be a PAYE adjustment to your tax coding).

# If there is an IHT issue, then you must be sure that the property pch and your loan is formally recorded as such, otherwise the 85k os mge (or whatever is remaining) will be classed as a PET, and treated accordingly.

So whilst this is completely doable, you need to ensure that its legally watertight and that all tax/IHT issues have been considered and catered for, before you all jump in.

I've just written as things have popped in, so apologies if its a bit jumbled, and or I've forgotten to include other relevant points (which I will have), I'll pop back later to add where needdd and tidy things up !

Hope this helps

Holly