Property transfer on death

simmonsn

A member of the family has been given a terminal health diagnosis and inevitably has to consider what needs to happen thereafter.

Their home has good equity in it and a current value of around £200K, with a repayment mortgage of approx. £45,000 outstanding.

Rather than sell the property at market rates upon death, my relative has thought about offering the house to his children at a price sufficient to repay the mortgage, but allow the children not to incur a possibly unaffordable mortgage of their own.

Are there any legal or tax restrictions that might prevent this option? Would the fact his children are Executors be an issue (if they aren't acting in the best interests of the estate etc.)? Could it be constued as avoiding Inheritance Tax if that would apply on an estate with total value of around £200K after the mortgage is redeemed.

As my relative sees it, there is no requirement to sell property at the market value, if the seller is happy to accept less. Is he right?

Any/all advice welcomed.

TrickyDicky101

Sorry, I don't understand why your friend would be tempted to do this. What does it gain? How is #45k going to be raised if not by mortgage? Why not sell the place on friend's death to repay the mortgage and distribute the estate?

IHT nil rate band is £325k so a £200k estate is not at risk.

princeofpounds

IHT threshold is something like £325k. Will the entire estate be over that?

simmonsn

Thanks - knowing IHT is not an issue is a good start. The estate will definitely not reach the threshold, even including full market value for the hourse.

His thinking about selling below value, is that his daughter in particular has a low income and together with her partner could not afford to take out a mortgage for the full value of the property and needs more space with a young child than her current home (which she has on a part-rent, part-mortgage). If the property was transferred to one or both children at little more than the value of the outstanding mortgage, they would have space and security at an affordable price, whilst still having the freehold value as security.

The children can manage their day to day living, but the daughter in particular is not likely to have a significant joint income in the future to allow her to trade up at market rates.

If it's legal, it seems to be an easy way of giving the children some security rather than cash. There's also a degree of emotion about selling off the home they grew up in.

Hopefully that explains things a little better.

Tixy

What do the children gain from this that would be different to inheriting the property when he dies?

If they want to keep the property at that point they would need to raise £45k to clear the mortgage . If they were to buy the property now they would need to raise £45k to clear the mortgage.

Is he planning to gift it to just one child and he has 2 children? If he has a will is it currently left to just one child or is the estate split equally between them?

Is he likely to need a nursing/care home and does he have sufficient cash to pay the fees?

TrickyDicky101

If there are two children involved then what happens when one wants to 'realise' (ie turn into cash) their inheritance but the other doesn't?

There's nothing to stop the kids inheriting the house (with mortgage) and then raising a mortgage to clear the existing mortgage (so that the property could still be retained). The house does not need to be sold before death.

For both kids to have a stake in the house, then both need to be on any mortgage secured on the house - they need to be conversant with what joint & several means then as regards the mortgage debt.

gallygirl

I'm a bit confused I'm afraid.

House value = 200k
Mortgage = 45k
Equity = 155k

With 2 children, each would stand to inherit 77.5k each.

If the daughter buys the house she would need to buy the other sibling out of their share of their inheritance?

simmonsn

I think the exact split has yet to be decided. Knowing whether it was even possible was the starting point.

From the responses so far, it looks like the options available would be:

a. Joint / several ownership on a shared mortgage by both children. But with potential issues down the road if they want to separate their investment.

b. One child to take on a mortgage that effectively repays the existing mortgage and also provides additional funds to cover the sibling's share value.

Either option sounds promising, and (for the moment at least) the children are on good terms!

G_M

I don't understand the 'sell to his children' bit.

If he is (sadly but irreversibly) dead, he cannot 'sell' anything.

The property will be part of his Estate and it will be for his Executers to deal with.

Who are the Beneficiaries of his Estate? The children? The children will inherit the property unless the Executers are forced to sell the property to pay off debts like
* the mortgage
* inheritance Tax
* credit cards
* loans etc

There is no reason, of course, the children cannot contribute towards paying off these debts themsleves in order to save the property from sale (and hus inherit the property).

The big questions are: is there a will and who are the Beneficiaries?

simmonsn

Yes. There is a will. The children (or their children) are the beneficiaries, and they are also the executors.

If this could be seen as conflicting interests, there is still an opportunity for the will to be revised.

Could all this be put in place before death, so then it is a sale and takes the property out of the estate?

Care home costs are unlikely to be incurred, so selling early couldn't be construed as an attempt to avoid paying them

G_M

What exactly are you trying to achieve?

The children/grandchildren (jointly) end up owning the house? Equally?
The property is sold and the The children/grandchildren end up inheriting the sach value of the estate? Equally?

I think you are making this far more complex than needs be.

Write will dividing the Estate into shares (ie each of 4 named people to get 25% or X & Y to get 30% each and Z to get 40%)

The Executers then ensure that this is achieved either
1) by selling everything and distributing the cash or
2) by accepting appropriate fair conributions from each so as to pay off debts and keep the property, then transfer the property into new names, specifing what share of the property each owns.