Buying Elderly Parents Property to take on Loan

jamesh79_2

Hi all

I'm hoping that I can get some advice?

My wifes parents are in their retirement and about 10 years ago took out an interest only loan against their property. The loan is now due for repayment and they dont have the funds (about £70k) to cover the cost.

They are getting on and I want to help them find a solution to this issue and remove the worry from them, I was considering the option of buying the property from them and effectively taking on the loan.

Im interested to understand how this could or indeed if it can work? I see the process being:

The property is sold to me and my wife at market value (Approx £190k)
I would take out a Mortgage for the outstanding loan (£70k)
The funds transfer would simply be the new mortgage paying off the existing loan

Does this approach make sense and would it work? Are there implications I should consider, I.e. Taxation, IHT etc?

Thanks in advance

bryanb

Major worry is if they need to enter a nursing/care home. they will be assumed to still have the property/money from it.
Google deprivation of assets.

Yorkie1

If the parents are going to remain resident post-completion, which it looks as though they will, you are highly unlikely to get a mortgage. Lenders don't like that scenario.

NB. If there was a way to make it work, and the parents received the full market value of the property, deprivation of assets wouldn't be an issue.

Kazza_Monkey

You could be liable for income tax if you are renting it back to them. Deprivation of assets would only apply if they gave away or frivolously spent the equity the received from the sale (to my understanding, someone might correct me),also they could use the equity to fund care home if needed so wouldn't need help from the state for a while (approx care home cost 25k a year). I'm in a similar situation but we are going to move my parents in with us, we are seeking advice from a solicitor and I would recommend you do the same just to cover all eventualities. Good luck with it x

jamesh79_2

Hi all

Thanks for the responses. I will certainly meet with a solicitor to discuss further.

One quick follow up question. If I could find a way to get a mortgage and buy the property, is income tax based on 'profit' I.e. If the mortgage was £200 and we received £300 a month, is the tax liability on the £100. I'm probably simplifying it, just trying to get an idea.

BitterAndTwisted

You'd pay tax on the £300 as it's income. The cost of the mortgage, if it's a residential one, is irrelevant. Buy-To-Let mortgages allow to to offset the interest but not the capital repayments. Getting a BTL mortgage will need a formal tenancy agreement where the lender would agree with family members as tenants. Many do not