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Buying property from family

edited 30 November -1 at 1:00AM in Mortgages & Endowments
8 replies 37.1K views
IMIM Forumite
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edited 30 November -1 at 1:00AM in Mortgages & Endowments
My wife and I currently rent our house from her parents, but will be looking to buy it from them within the next few months.

Whilst this should make for an easier process in some respects - we're are pretty sure that they aren't going to set out to shaft us, like most vendors would :) - I'm equally sure that there are going to be issues to address.

Can anyone offer any guidance/experience on buying property from family (or outside the estate agent loop in general) in terms of the legal side, mortgage lender's response, practicalities etc.

Many thanks

Iain

Replies

  • PalPal Forumite
    2.1K posts
    Mortgage company will not care. They will want a survey as normal and will them make you a mortgage offer (or not as the case may be).

    The get a solicitor to handle the paperwork and liase with the mortgage company. They will get the money transferred into your parents accounts on the day the deal completes.

    Easy really.

    The only thing you might want to do is get quotes from a few estate agents for its value so your parents are happy with the price you are paying. Also, remember to knock off the value of any "deposit" you are paying so that you don't pay stamp duty on it.
  • Tim_LTim_L Forumite
    3.8K posts
    I think that the advice about reducing the price by the deposit to reduce stamp duty could be costly.

    Firstly, the IR are clamping down on stamp duty avoidance on house sales. The onus is on you to declare the actual total price paid when filling out your self assessment forms, and there are penalties if you don't.

    Then if your wife's parents go into residential care, there could be problems and liabilities if you have effectively bought the house at less than its market value. The investigations can go back many years.

    And finally if the parents were to die within 7 years of the sale, there would be inheritance tax liabilities.

    What you need to ensure with this sort of thing is that you pay a reasonable market value. This doesn't rule out getting a lowish price taking into account there will be no estate agents fees for the seller and so on, but you may have to justify the price you paid to someone in the future. Very well worth getting advice from your solicitor on what the precise position is.
  • PalPal Forumite
    2.1K posts
    I was assume a relatively small deposit (5 or 10%). If they have a 50% deposit then I definitely agree with Tim.
  • IMIM Forumite
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    Thanks for the advice so far.

    To clarify a little....

    There are (hopefully) no issues relating to my wife's parents going into a residential home/inheritance tax. (They are only in their late 50s, and are selling to us because they live permanently on a canal boat).

    We are hoping to get the house valued in the next few days, but I'd hope that we will only need to borrow about 50% of the cost of the property.

    Was the suggestion about avoiding Stamp Duty, that we would give that 50% direct to the in-laws, and tell the Big Mad Tax Man that the sale price was the remaining 50%?

    Hmmm…. Can't see us getting away with that.

    I think that they are going to ask for a figure a bit below the market price, as a present to us. How is the best way to handle this, bearing in mind we want this as a 'fighting fund' for work around the house, rather than just a smaller mortgage?

    To illustrate with (totally made up, but simple) figures….

    Valuation of house = £100,000
    Agreed sale price = £90,000
    Our deposit = £60,000

    If they has £10,000 in cash lying around to give us, this would be straight forward - we would just need to agree a sale price of £100,000 and borrow £30,000.

    Assuming they don't*, we could effectively not mention the family agreement to the mortgage company, borrow £40,000, and then get the in-laws to give us the £10,000 once they get the cheque for £100,000. Presumably though, this would present tax implications for them (and indeed for us).

    What is the best way to do this, which is a) legal and above-board, and b) minimises tax repercussions all round?

    *And they don't! They don't have the cash to give us, but are happy to make a slightly smaller profit on a house for which they no longer have a mortgage.
  • Tim_LTim_L Forumite
    3.8K posts
    You need to talk to a solicitor who specialises in tax law really.

    The Inland Revenue have their own means of valuing houses, so the price you pay must be reasonable in comparison with other transactions locally. I agree with Pal that shaving a small percentage portion off is probably not going to cause a problem, unless it takes you across a stamp duty threshold.

    You probably do need to consider IHT, even though your parents are young, as accidents can happen - it would be very annoying to get hit with a large tax bill unexpectedly if the worst were to happen. The figures you quote - 100k - wouldn't really be any sort of problem at all, as there wouldn't be any IHT liability whatever happened assuming no other significant assets. But since these are illustrative, I guess the actual amounts could be much higher.

    If this is the case, then as far as gifts go, it's probably much better tax wise to buy the house at the full price, then as you suggest have your parents give you some of the purchase money back as a gift at some point (perhaps not immediately). If this is a one off gift, they can each use two of their annual gift allowances (i.e this year and last years), which will allow them each to gift £6000, i.e. a total of £12000.

    However do check with a solicitor to see if there are any problems with the transactions being viewed as linked.
  • IMIM Forumite
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    Before we sit down with my wife's parents to discuss figures, we want to get a survey done so that we know what we are taking on - and so that if it turns out the place is falling down, they will be able to make a claim on their buildings insurance, before we buy.

    If we just engage the services of a surveyor ourselves, could our mortgage lender (as and when we find one) turn around and demand another survey, or would they just take the findings as the basis for their offer?
  • PalPal Forumite
    2.1K posts
    They would carry out their own survey anyway.
  • IMIM Forumite
    344 posts
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    So we pay out for two surveys...?

    Boo... :'(
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