Joint mortgage with Father - Capital Tax Gains

Redda

Hi All,

Just a brief background for you, me and my partner are looking at getting a house. Unfortunately she has a couple of Defaults on her credit report which is stopping us getting a joint mortgage (we have been to a mortgage advisor and still no joy).

Now this was prior to her becoming a teacher, so she had a few student debts which she has since been able to pay off and is on a rather good salary. Anyway, because we have a child together, the banks are running scared and will not lend me the amount required for a house we have seen.

My credit history is spot on, no defaults, CCJs or anything similiar. I also have no debts, no loans, no credit cars - just a car on H.P. (despite lack of debt, over the years I have taken out loans here and there to get my credit score up). Apart from the defaults (one from two years ago and almost satisfied, one from three years ago and satisfied three years ago) my partner has no other debts, has credit cards paid off and no loans.

Because of this and because we have paid for all bills, rent and council tax without any hassles and without getting into debt, including saving for a deposit, my father has kindly agreed to get a joint mortgage with me to boost my affordability calculations.

Now it is something we are discussing with the mortgage advisor and is not set in stone. The aim is for my father to come off the mortgage in 2-4 years time when my partners defaults are old enough to not be an issue with lenders or come off her credit report altogether, and she can come onto the mortgage (we know there are costs to do this).

Our main concern is, although my father will pay absolutely nothing towards the house, no deposit, no mortgae, bills e.t.c. nothing, will he still have to pay capital gains tax when he comes off the mortgage in a couple of years time (he owns his own property and lives with my mum). Does the taxman see it as black and white or providing my and my partners bank statements to show we paid the mortgage ourselves acceptable?

We are going to see a solicitor about this, just wondered if anyone has come across this before? I see a lot of articles online about fathers having to pay if they gift the home to a relative or if they have been paying towards a property with their son/daughter to get them on the ladder, but can't find anything similiar to my circumstances.

Any feedback will be greatly appreciated.

holly_hobby

Just from the off, there are lenders (depending onyour deposit) that will consider your jnt application with partner, given her defaults are in excess of 12/24 mths old .... the rates may not be as competitive as a straight clean residential provider, but horses for courses and will mean Dad doesn't have to be involved .... your broker should be aware whom the providers are - bottom this out first maybe ?

Moving to the actual query .....

CGT is based on Beneficial Ownership - so if he won't live there, doesn't pay the mortgage, won't benefit from any free equity on sale or rental receipts if rented out, and he can prove this to HMRC, then no, he won't be subject to CGT.

As a side note, if HMRC dont accept 1 or all of the above as proving Dad has no BO benefit, then he has an annual CGT exemption (currently £10900 per person, per annum) of which anything unused at time of disposal could be used against his "share".

Please speak to your own tax practioners to ensure you understand how and when CGT is applied, and how to mitigate this in Dads circs.

You will have to think carefully as to how you will hold the property -

Joint Tenants (JT), which gives equal ownership and automatic transfer of ownership on 1st death to the surviving owner
OR
Tenants In Common (TIC), where each individual has a ringfenced share of ownership, which can be unequal ie 99/1 or whatever - which helps mitigage CGT where there is BO established, but does not automatically tsf the deceads property share to the surviving fellow owner, it instead becomes part of the deceaseds estate, which will be administered as per their will or under Intestacy Laws if no valid will located/in place at time of death.

You can see from above that, should you die first, you need to put in place arrangements and protection (life protection to redeem os mortgage) for your partner, and discuss with Dad what would happen re partners interest, if you hold this on a JT basis -and also if held under TIC if Dad passes before tsf to your sole ownership has occured, how his share will be discharged (ie it needs to be docmented in his will for it to pass to you, esp if he has a surviving spouse, or there are other surviving siblings in the mix, whom will benefit if he dies intestate/or no direction re property given in his will).

You need to sit down with a mortgage broker, and discuss with your solicitor how best to manage the deed and will situ, to ensure that when death occurs for one of the parties (pre removal from the deeds), how this will be managed to avoid family/residency/legal/money disputes ....

Dad also needs to be aware that the ownership of a property he does not reside in will affect any application for means tested benefits (inc any long term care provision), and that he is legally (regardless as to how the property ownership may be split) fully responsible with the mge debt along with you.



Lots to consider ... but yes on the face of things, its a possible solution to your current issues ........

Hope helps get the ball rolling .......

Holly

Redda

Sorry it has taken me so long but just wanted to thank you for taking the time to provide such a detailed reply.

magpiecottage

holly_hobby wrote: »

Dad also needs to be aware that the ownership of a property he does not reside in will affect any application for means tested benefits (inc any long term care provision), and that he is legally (regardless as to how the property ownership may be split) fully responsible with the mge debt along with you.

With that in mind it might be better to see if he can be a guarantor instead. Although he would still be fully responsible for the mortgage debt, he would have no beneficial ownership of the property.

If the OP has life cover then if he died the mortgage would be repaid and there would be no debt for Dad to guarantee, leaving the surviving family in the house.

Assuming that sad eventuality does not occur, the OP would be able to remortgage to a lender who did not require a guarantor in due course.

He probably still needs a broker but this is probably a better option in the long run.

holly_hobby

If the OP hasn't sufficient income in the first place, and/or is not on a developement career path (ie income gted to increase to release the gtor within a defined timeframe), then I don't believe a gtor mge to be the solution. (given these are typical parameters a gtor arrangement will be based on).

My preference remains keeping Dad out of it all together ... given the legal and financial responsibilities it will bring to him, for no benefit or security, and I again recommend bouncing a jnt app with the GF (via an WOM broker), off an adverse lender such as Precise in the first instance.

Hope this helps

Holly