House purchase from parents (gift?)

naithr

Hi all

This is my first post so please be gentle!

My parents have decided that their house is too much for them now (garden) and they have decided to purchase a flat in a warden controlled complex. They will be purchasing this with their savings.

They want me to buy their house (they own it with no mortgage) and we are looking at the best way to do this.

The question is, rather than get a mortgage and paying interest for the next 15 years, would it be possible for them to gift me the property and then have me pay them £800 a month for 15 years? This would meet their valuation and save me a huge amount of money in terms of what I would pay a bank over the course of a 15 year mortgage in interest.

This is clearly at this point only a thought. If I am missing something obvious or there is a better solution then all suggestions would be welcome.

Thank you

Naith

CLAPTON

there is no legal or tax reason why you can't do this:

if interest were charged then they would need to declare that to HMRC and would be liable for tax.

one would need to consider what would happen if

-they died (other siblings etc)
-you died (who would repay the loan)
-you couldn't pay (no job etc)

naithr

Thank you for the quick reply Clapton

If they died they would be happy for the debt to be wiped out as we are their only beneficiaries. Indeed if they died tomorrow we would inherit the house so they have no issue with this. I believe they would gift the house without any payments but I want to pay as I would feel that I am taking advantage of this situation otherwise.

If I died my life assurance would cover the remaining payments, though I suspect they would tell my wife to stop paying them!

If I were ill or lost my employment, they would be happy to give a payment holiday of infinite duration as they are secure.

Given their attitude to this, can we do this informally or would doing so have tax implications?

Thank you again for your thoughts

Naith

naithr

and how do I thank you!? I cannot find the button

xylophone

The situation you describe is not a gift but a sale on deferred interest free terms?

In your position I would have a legal agreement drawn up by a solicitor.

Dave_the_Ginger_Cat

The other thing to consider as well as IHT is bankruptcy law, which applies if they are selling the house at below market value. If they are, and they should go bankrupt within 6 (IIRC) years of the transfer, some of the value of the house will need to be paid back to the receiver.
Do hope it's unlikely, but have to cover all bases

DominicJ_2

Get proper legal advice, but the best best is likely to be for you to just buy it for as much as you can afford / as little as they can afford

Just off the top of my head, you could be hit with tax evasion, your evading stamp duty, Inheritance Tax on the difference between what you paid, £1 and the fair value, if they need residential care, you could be hit with a charge for the difference on the house.

Theres a world of difference between you buying it for £50k and £5, legally.

BitterAndTwisted

How about you pay them the agreed rent for the next 15 years and then they gift the property to you after that?

CKhalvashi

BitterAndTwisted wrote: »

How about you pay them the agreed rent for the next 15 years and then they gift the property to you after that?

This would open exposure to an increased IHT risk.

OP, what is the CGT payable (probably £0), as I can then gauge the best way (for tax purposes) to do this.

What you need to do, is cover all the bases.

CK

naithr

Thank you everyone for the replies.

The property is worth approx £150000 so I assume the CGT would be £0.

The initial suggestion of 15yrs of £800 would give £144000 which I would assume could not be seen as undervaluing the property.

Just to reiterate, we are both happy with this so unless there is a "nicer" way of doing it I am really looking for obvious holes in this arrangement.

Thank you again for giving your time

Naith

CKhalvashi

Nothing obvious, as long as it's agreed as conditional sale, with a solicitor.

This will bring tax-free 'rental' income for 15 years for them, too, which is why contracts really need to be drawn up.

CK