Parents want to do a "House Swap".

AlexLK

My parents are 77 (father) and 71 (mother), thus coming to terms with the fact they will not be around forevermore. Recently, they have been keen to "swap" houses with my wife and I for a couple of reasons, the main one being to avoid future inheritance tax.

Our house is currently mortgaged with little equity, theirs is obviously owned outright. Their plan is for us to effectively "buy" their house for what we owe on our mortgage (£170,000) which would be less than the inheritance tax bill I will one day see for the place. They also have other assets and investments that they do not wish to see me lose through having to pay extortionate rates of tax, though will be seeing an advisor in relation to that.

Whilst in one way I feel like snapping their hand off (their house is beautiful and way beyond what my wife and I could probably ever afford), in many ways where I live at the moment is "home" and my wife would likely feel uncomfortable living in my parents house. I suppose what I'm asking for is advice on any pitfalls we may fall foul to?

Person_one

What is the house actually worth if they were to sell it on the open market?]

I'm pretty sure that's what matters for inheritance tax, not what you pay for it.

Google 'deprivation of assets'.

AlexLK

It's worth in the region of £1,000,000. Perhaps a little more, perhaps a little less. I'd be lucky to see £215,000 for mine in it's current state.

Mojisola

AlexLK wrote: »

My parents are 77 (father) and 71 (mother), thus coming to terms with the fact they will not be around forevermore. Recently, they have been keen to "swap" houses with my wife and I for a couple of reasons, the main one being to avoid future inheritance tax.

Whilst in one way I feel like snapping their hand off (their house is beautiful and way beyond what my wife and I could probably ever afford), in many ways where I live at the moment is "home" and my wife would likely feel uncomfortable living in my parents house. I suppose what I'm asking for is advice on any pitfalls we may fall foul to?

Why get into the complication of swapping houses? Your parents can sell their house, buy something smaller and give you some money.

Person_one

AlexLK wrote: »

It's worth in the region of £1,000,000. Perhaps a little more, perhaps a little less. I'd be lucky to see £215,000 for mine in it's current state.

This is not a good plan!

I suggest you post this on the house buying board, there are experts there, but I fully expect the answer will boil down to 'This won't work, don't do it.'

If your parents wish to downsize, they should do that as they see fit, independently of any housing decisions you make for yourself.

whitewing

Apart from anything else, can you afford to run a house of that value?

AlexLK

Mojisola wrote: »

Why get into the complication of swapping houses? Your parents can sell their house, buy something smaller and give you some money.

My parents wish to pass the house down so to speak and hope I shall do the same in many years to come.

They basically only want to downsize if I'm willing to swap with them. They also will not give me cash for reasons amounting to my irresponsibility with money.

Person_one wrote: »

This is not a good plan!

I suggest you post this on the house buying board, there are experts there, but I fully expect the answer will boil down to 'This won't work, don't do it.'

If your parents wish to downsize, they should do that as they see fit, independently of any housing decisions you make for yourself.

What makes it a bad plan? I mean financially. Emotionally is a whole different ball game, of course.

Person_one

AlexLK wrote: »

What makes it a bad plan? I mean financially. Emotionally is a whole different ball game, of course.

Did you google deprivation of assets?

Why do you think it would be this easy to avoid paying a huge tax bill? It just doesn't work like that!

AlexLK

whitewing wrote: »

Apart from anything else, can you afford to run a house of that value?

I think we could, just about if we cut back on spending unnecessarily.

FatVonD

I know somebody who did this, her grandmother sold her a 3 bedroomed London flat for basically the amount she could get as a mortgage (which was probably about a quarter of what it was worth.) The surveyor raised an eyebrow and commented on what a bargain she'd got. :rotfl:

As far as I know her grandmother is still alive and more than 7 years have elapsed so I reckon they're probably home and dry regarding inheritance tax now.

heartbreak_star

Emotionally, Alex, it's another thing they have to lord over you, IMO.

HBS x