Taking over parents mortgage

Marco_Brandon

Hi guys,

My parents own a home in Surrey with an outstanding mortgage of £325,000. The property is currently valued £410,000. Approximately 18 years left on term. Interest only mortgage.

My dad is getting old and struggling to make the mortgage payments. Myself and brother help around the house a lot and pay bills on their behalf. We are now wondering whether it is possible to transfer the mortgage of £325,000 to both our names (me and brother). We then plan on paying the mortgage going forward on their behalf.

This is my parents only home so no CGT to worry about. Now I don't know about IHT but if the mortgage transfer was considered a "gift" then this would fall nicely into the IHT nil band (parents haven't made any IHT gifts to date).

Also, what are the stamp duty and land tax consequences of this?

ViolaLass

You can't transfer a mortgage to someone else and you can't hold a mortgage on a property that you don't own. You could buy the house from them but the lender wouldn't like them staying there.

Marco_Brandon

Thanks ViolaLass,

In that case is it possible to buy the house for the amount of the outstanding mortgage as opposed to the market value?

ViolaLass wrote: »

You can't transfer a mortgage to someone else and you can't hold a mortgage on a property that you don't own. You could buy the house from them but the lender wouldn't like them staying there.

ViolaLass

They can sell it to you for any amount they like but you will then need to google 'deprivation of assets'.

Marco_Brandon

Deprivation of assets we are not concerned about that. Me and my brother including our spouses make a good living so we will be looking after our parents until the end and take on all necessary costs.

Any thoughts on SDLT?

Annisele

If their house is worth £410k and they sell to you for £325k, then they're giving you £85k. I struggle to see how giving away such a large amount of money could be to your parents' benefit, particularly as they're in financial difficulties.

But I think you have two more fundamental problems with your plan. One of them is a practical problem - I can't see you getting a mortgage - and the other is a tax problem.

If your parents wanted to give you £85k of their equity and then move out, I don't think you'd have much trouble getting a mortgage on the property. However, the fact that they will still be living there means the £85k isn't really a gift - it's a payment in exchange for being allowed to live in the property for the rest of their lives. Technically, that's a "gift with reservation". Mortgage lenders won't like that one bit, as it makes it very difficult indeed for them to repossess the property if you stop paying your mortgage. Hard to repossess = not interested in lending in the first place.

The gift with reservation also causes you a tax problem. If your parents continue to live in the property, then (so far as IHT is concerned) the property is deemed to stay within their estate. Since it wouldn't be your only home, and you'd have owned it for the last few years, you'd be liable for CGT if you sold. That means that on their death, you could potentially end up paying both IHT and CGT on the same property.

Why can't you and your brother just give/lend your parents some money every month? Much easier all round.

Or - since your parents sound fairly young, and probably need a long term solution - can't they downsize to a property they can afford?

amnblog

ViolaLass wrote: »

You could buy the house from them but the lender wouldn't like them staying there.

That depends on the lender.

getmore4less

What are you trying to do?



If the house is their only asset with a joint nilrate band of £650k then IHT is not currently that big a risk as they only have £85k.

Easiest is for you regular gift them from income to pay the mortgage and just inherit the house when thay pass.

No tax issues, while they live there.