Parent gifting house & remotgage!

swanslegend

Hi

I hope I don't make this post too long but want to get all the facts down.

My partner and I recently purchased our first home last year. We are both on comfortable salaries bringing home gross £65k between us. Our mortgage is for 33 years but we intend on bringing that down to 20 years in January via a re-mortgage. We only have 1 debt which is a car loan of £227 per month. All other outgoings are standard outgoings.

Her father currently owns his house with no mortgage, the house is worth approx. £100k. We are looking into the possibility of buy his house from him for possibly a little less than what its worth and allowing him to stay there until he goes, so he can enjoy the money while he is alive. The way I though of doing this was to have him gift the house to us and we would then re-mortgage for say £40k and pay that monthly. Then in 10years say we re-mortgage again for another £40k and pay the balance.

We can afford the cost of the mortgage and we have agreed that as long as her father lives, he will maintain the property. Can anyone give me any advice on this as this is new territory for me.

Would we have difficulties in re-mortgaging in January and obtaining a new mortgage on the new property, even though the new property will have really good LTV?

Thank you

booksurr

you will have a reduced choice of lenders because the occupant will be its previous owner and most lenders do not allow that - not impossible, but it will be reduced choice of lender and so probably a higher interest rate than if that was not the case

if your father in law needs the money to increase his comfort in retirement then it is your decision to buy it from him so good luck

But be aware that unless FIL has other sizeable assets (in which case why does he need "your" money) then you will be the owner of a property on which you are now voluntarily exposing yourself to tax so not only will you now be paying interest on the loan but you will also receive less money in inheritance than you would if you had not bought it. Obviously if the objective is to give money to FIL then that trumps you having to pay a bit of tax but you will have to pay Capital Gains Tax when you finally sell it whereas if you had simply inherited it on his death there would be no tax to pay as his estate appears to be well below the IHT threshold

swanslegend

Thanks for your post.
The main reason is to ensure that he enjoys his retirement and also its a long term investment for my partner and I. If we buy the property from him at less than market value then when we eventually sell we will have capital gains tax to pay. is that correct?

If he was to leave the property it would need to be split between 8 people so he feels that he might as well enjoy the money whilst he is here. is there any other scenarios where we could do this without having to pay tax later on down the line?

Any ideas which mortgage companies would be interested?

Cheers

booksurr

yes you would have to pay CGT based on the difference between what it was worth when you bought it and what you get when you sell it. It will not be exempt as it is not your main home and even if you move in at a later date you will still owe CGT for the period you did not live in it

you and FIL are classed as "connected persons" so the undervalue is ignored and your purchase price for CGT purposes will not be what you physically pay him but will be its market value at the time you acquire it. The difference between the two values is classed as a gift from your FIL to you but becuase he will still ive in it then that undervalue will will treated as a gift with reservation meaning it will remain in his estate until he dies - however IHT appears not to be an issue for his estate so if you buy at an undervalue IHT will be irrelevant and your CGT exposure is the difference between market value (not what you paid) and what you sell it for. You would therefore be well advised to ensure you document the market value now so you can support your eventual CGT calculation.

since you say there are potentially 8 beneficiaries how do you know that they will not be livid that you are doing them out of their inheritance by buying at undervalue - what do they get out of your early inheritance, because that is what the undervalue is, it is FIL making a gift to you and you alone therefore depriving them of "their" inheritannce

make sure he updates his will when he is no longer the owner

Cissi

You may also want to check out "deprivation of assets"...

Jenniefour

Since your FIL would be signing away a major asset would there be any future issue with deprivation of assets if your FIL needs residential care in future?

Another option is for each of the 8 beneficiaries to make a contribution to increasing FIL's income now. Have they been asked how you might all club together and make sure FIL has a good life now?

What's clear from your post is that there are conflicting interests here a) FIL enjoying his life now b) investment opportunity for you and your partner and c) the beneficiaries of FIL's will.

Your FIL needs to seek his own independent legal advice about all this.

swanslegend

I understand the concerns surrounding the other beneficiaries, however we will pay approx. £80k and the other remaining £20k shortfall will be to ensure he lives in the property until he dies. So we are buying the house from him and therefore its not being gifted. If we were not going to do this he would have to sell the property and pay rent for the remaining years of his life which could amount to a large sum wasting his inheritance. This way he gets to enjoy the money he has invested in his home.

Is there any mileage in transferring the current property to my name and putting the new property into my partners name, changing her address to my FIL address and claiming its her PPR?

Conrad

swanslegend wrote: »

Hi


Her father currently owns his house with no mortgage, the house is worth approx. £100k. We are looking into the possibility of buy his house from him for possibly a little less than what its worth and allowing him to stay there until he goes,

Renting to a family member is classed as being a residential loan thus subject to normal FCA rules. Highly unlikely this will be accepted as you will not be resident thus this is in effect a buy to let, but will fail the buy to let rules due to him being a relative.


Furthermore FIL's lawyer will not recommend this. If you went bankcrupt / were in a coma etc, he would be turfed out of 'his' home due to your getting into arrears.


You also have to watch out for falling foul of the deprivation of assets rules his local council will have in place to stop people getting around state care home costs.

swanslegend

Jenniefour wrote: »

Since your FIL would be signing away a major asset would there be any future issue with deprivation of assets if your FIL needs residential care in future?

Another option is for each of the 8 beneficiaries to make a contribution to increasing FIL's income now. Have they been asked how you might all club together and make sure FIL has a good life now?

What's clear from your post is that there are conflicting interests here a) FIL enjoying his life now b) investment opportunity for you and your partner and c) the beneficiaries of FIL's will.

Your FIL needs to seek his own independent legal advice about all this.

Thanks for your input.
The other beneficiaries are not interested in paying towards the property. I believe that as he is selling his house to enjoy his retirement and at this point is in reasonably good health and has not indication he will need care, then I believe there will be no future issue with deprivation of assets.

I am aware that my FIL will require legal advice however I am trying to ascertain the logistics prior to paying for legal advice and if this is worth perusing.

I appreciate your comments, thank you

xylophone

Re selling at below market value - this seems relevant.


http://www.taxinsider.co.uk/150-Can_I_Sell_My_Property_Below_Market_Value.html#options

If he was to leave the property it would need to be split between 8 people

Need? Or he wishes eight people to benefit? In which case his will could direct his executor to sell the property and divide the consideration between the eight.

Conrad

swanslegend wrote: »

Is there any mileage in transferring the current property to my name and putting the new property into my partners name, changing her address to my FIL address and claiming its her PPR?

You would have to pretend you are splitting up if you want existing resi mortgage put in your name only.
This has many pitfalls - were will the kids live, why is your partner not claiming halve the equity etc.


If she buys FIL's house lenders will question why she is not putting down a deposit, why being sold under value, what rights FIL will retain etc. If you attempt a remo they will see he is living there. They will probably notice your partner has not really moved in.




My own plan for care home costs is to sell my folks house if it came to it and use this cash as several 25% deposits on buy to lets. This should cover 65% of care home costs, the balance we would have to stump up if we can.