Buying a home from family

susannthe3cs

I currently rent a house from my dad, it's owned out right so no mortgage implications. I want to offer to buy it in instalments from him. Would this be classed as a private mortgage ? What would we (if he agrees) need to do to formalise this agreement to protect us both ? He's not elderly so no asset loss etc comes into this either.
Thanks

Conrad

He would need advice from a Solicitor as there are downsides for him such as what happens if you went bankrupt. You need to ensure your part of the property is properly recorded by the land registry otherwise you'd have no protection.

I'm not sure what the tax man would make of a deal like this if the full value of the place is above the threshold.

This wont be classed as a private mortgage, more a personal payment plan between the 2 of you.

susannthe3cs

Thanks so it is "doable" I'm not up on tax etc and wouldn't want it to be anything illegal just saves the hassle of getting a mortgage as I've had bad credit before and would rather someone I know get the benefit of the cash than a bank if that makes sense

Dave_the_Ginger_Cat

On balance I'd recommend agsinst any sort of long term financial arrangement with family.

Today everything may seem good - however financial situations and relationships change. This board is full of stories of situations which have gone wrong following the very best of intentions, and I'd always advise steering clear

Could it work? - absolutely

But if you do go into it, be very sure you've thought about what would happen if circumstances change

holly_hobby

Dad will have to report any chargeable interest on the loan to HMRC via SA for tax purposes.

I am assuming this hasn't ever acted as Dads primary residence, or if you are buying it an under value ?

Dad (as this isn't his primary residence and it is a connected transfer) will be exposed to cgt (less reliefs/exemptions/permitted costs/expenses) on the difference between acquistion cost and at least market value or pch price which ever is higher.

If he is selling at under value, it will affect any means tested benefit test, and the discount will effectively become a PET (relevant if he passes within 7 yrs of the transfer and his net estate (inc non exempt transfers/gifts) exceeds available nil rate IHT threshold.

Whilst if sold at under value, Dads CGT/IHT computation will be based on the market value, in respect of yourself SDLT will be based on the actual agreed pch price, which if under 125k means no Stamp Duty, if the pch price exceeds this you will be exposed to SDLT.

If Dad does not report the transfer of ownership to HMRC, they will find out from Land Registry and their reportings of property transfers,and if he's avoiding CGT and IT on interest, he'll be in for a nasty letter and fine.

You can of course have a private loan arrangement, you need to make sure its documented as such (esp if there is an IHT issue), with details of any interest charged etc, and how things will pan out if the loan is still os when dad passes, and that you hold legal title to protect your asset from his creditors/courts/intestacy regs if no valid will at time of his death.

You need to discuss this with your solicitor, whilst not forgetting HMRC reporting requirements.

Hope this helps get the ball rolling for you.

Holly x