Buying a percentage of my parents house

Mookieb88

I'm looking into buying a share of my parents’ house as an alternative to them taking a traditional equity release deal.

They are mortgage free and own the home outright but are cash poor and have limited income from their pensions.

I have the ability to buy a 25% stake in the property as an investment. The house has been valued at £160,000, so I will give them £40,000 in cash (I don’t require a mortgage for this) and take a share of the property.

Some context – I have a very good relationship with my parents, with no previous issues or contention between us and I would have gifted them the money but they insist on me getting something in return and whilst I know things can always go awry in any relationship, this is probably as solid a start point as can be imagined.

Questions

Given the relatively low value of the property I don’t anticipate any IHT issues in the future, also, the share is being acquired at fair market value – am I correct in this assumption?

What legal process needs to take place here? Is it simply a question of being added to the deeds and drawing up a simple agreement between myself and my parents?

I don’t intend to charge them rent on my share of the property….does this have any tax implications etc.?

I assume that I will have to pay CGT on any increases that I see from the value of my investment?



I appreciate any guidance / advice / experiences people have had with this type of situation

booksurr

if you are certain that their estate is below the IHT threshold (325,000 per person) then you have correctly identified the tax implications:
- income tax: there are none as the lack of rent is irrelevant if IHT itself is irrelevant
- CGT: correct, you are exposed to it. You will need "adequate" documentarty evidence to support your claim that the property is currently "worth" 160k and therefore 40k = 25%. Your best bet would be to pay a professional valuer for a written valuation, a less good alternative would be to take the average of some estate agent quotes bearing in mind an EA value is for marketing purposes not what it is actually going to sell for . When you eventually do the CGT calculation HMRC will use its own figures and take them instead if it does not "like" yours

as for the legalities - it needs deeds changed so must be recorded at the land registry. I assume your parents do not have a mortgage any more? if they do then it just got a lot more complex. If they don't, it is well within your competency to DIY - there are loads of posts on here about which Land Registry forms you need to use

Mookieb88

thanks for the reply and advice....yes, my parents are mortgage free so it should be a relatively simple process

Mojisola

Mookieb88 wrote: »

I'm looking into buying a share of my parents’ house as an alternative to them taking a traditional equity release deal.

They are mortgage free and own the home outright but are cash poor and have limited income from their pensions.

I have the ability to buy a 25% stake in the property as an investment. The house has been valued at £160,000, so I will give them £40,000 in cash (I don’t require a mortgage for this) and take a share of the property.

An alternative would be for you to loan them the money (with a proper signed agreement) - the loan to be repaid on the sale of the house following their deaths or a move into residential care.

If they would rather you bought a share of the house, you will have to be a 'tenant in common'. Married couples often own their home as 'joint tenants' so they may have to change to tenants in common as well - check that out.

All three of you should make sure your wills reflect the new position. What would happen to your share of their home if you died before them?

Mookieb88

making both of our respective Wills up to date is actually a fringe benefit of doing this transaction, it's forcing both parties to actually review what they said when they were originally written, but again, thanks for the advice