Buying my Dad's second home to help him benefit.

bigmondy

Have searched the forums and can't find advice that fits this unusual situation!

My dad rents his council house which he lives in with his partner and has no benefit's and only the state pension coming in for him and a small nursing pension for his wife.

My uncle left my Dad his remote cottage in his will in 2008. He has done his best to maintain it but it has gradually deteriorated despite me trying my best to help him make it habitable. We recently had a burst pipe that the insurer has refused to pay out on since it was on a "2nd home holiday and weekend only" policy and they are claiming he wasn't in the house when the burst happened. We are fighting this case with them but it has highlighted the worry has become too much for him. I was poised ready to get a 5 year fixed rate mortgage product transfer on my current mortgage at the end of this month..... that plan looks to have been scuppered now.

The house is probably worth about £120k in perfect condition and I would be surprised if it was valued at more than £70k in its current state.

Its too much of a burden for him now and too remote for him to enjoy due to his partners recent cancer diagnosis.

Poor guy is just anxious to remove the burden now but the house has been in the family for over a century.

I have a smallish mortgage with the Yorkshire BS and could afford a 2nd mortgage of around £40k very easily. NOT buy-to-let but for it to remain as a 2nd home, but in my name.

It would give them some cash at an important and difficult time and could cover the repair costs and he would be over the moon that it stays in the family, he was always going to leave it to me but it would be lovely to see him benefit slightly.

Are there other lenders that would look favourably on such a small mortgage at around 50-55% LTV, and are there CGT or IHT implications that would disadvantage either of us?

It's a bit of a worry for me that it has become such a burden for him. My current mortgage plus the additional mortgage of £40k falls well bellow my affordability threshold, I know this having been approved for a new 5 year fixed rate. It would still leave sufficient disposable income.

I am single (this could be one of the few situations where that might be an advantage) and the remote cottage is mortgage free and in my Dad's name as the sole owner. I can't add it to my additional mortgage as it would put me above the LTV that benefits the rates YBS have. Going to another lender looks simplest, I think.

Any advice gratefully appreciated as ever experts.

Beckyy

You may think you can afford a 2nd mortgage but that doesn't say lenders would, and many would not be willing to lend against a property in disrepair. I also think you may need a specific mortgage product for a 2nd home/holiday home and maybe something an IFA may need to find for you. Someone with more knowledge may be able to confirm.

I take it your Dad doesn't want to live in the property?

TrickyDicky101

You would need to establish whether the cottage is in a mortgageable condition.

Regarding CGT/IHT:

What was the probate value of the property in 2008 when your father inherited it? The 'disposal' to you would be classed at whatever the market value of the property is at the point of disposal. The chargeable gain would be this MV less the Probate Value. This is assessable against your father (and he will have a CGT allowance of £11.1k for the current tax year).

IHT: well below the threshold. No Gift With Reservation issues as he doesn't live in it. Non issue by the looks of it since his estate looks to be pretty small.

Do you have any siblings who might object?

lucie_1985

Wouldn't it be better for him to gift the house to you, you take out a mortgage on the house for home improvements, restore it to a saleable state having spent c.£30k then sell for £120k splitting the profits however you want to.

bigmondy

Thanks for the replies - for some reason my subscription to the thread never told me there had been any. Hence getting back so late in the day.

Beckyy - no my Dad doesn't want to live in the property and - yes I realise that this type of mortgage would be specialised.

!!!!!! - that is a good question - I'm not sure what the probate value was - but I would suggest that it would have been circa £86k and I don't think the market value will exceed that figure. If I was to give him say £20k without getting a mortgage, would he be taxed on £9.9k profit?

No siblings will object they are equally desperate to see him unburdened. It's a good question though.


Missed your post lucie - yes that is a good idea - I was worried that gifting it might cause either of us some tax issues. If he was to gift it and I give him some money - I would be happy enough to patiently restore it over a period of time. We wouldn't want to sell as it is part of the family.

I just don't know how to go about getting a mortgage on a 2nd property.

TrickyDicky101

Because you are connected persons for CGT purposes, any cash you physically pay is effectively replaced with the Market Value of the property at the time of transfer.

Assuming Probate value was £86k (you should establish what it was) and Market Value today is £90k say, then the gain is:

90k less 86k = 4k gain

Since 4k is within the £11.1k annual allowance, your father would have no CGT to pay.

Only if the gain exceeded 11.1k would there be a liability (this is assuming he hasn't used his CGT allowance for any other purpose in the current tax year).

bigmondy

I know for a fact he hasn't used his CGT allowance !!!!!!. he has been retired for about 15 years and has no income as such.

I will make enquiries as to the PV (must admit - never knew what that meant until I googled it after reading your post). Thanks for the education.

So it would be in his best interest to get as low a current market value as possible - I suppose that it is a good thing it is in a poor state then.

Stupid question alert: What happens if it is worth less?

lucie_1985

If it's worth less there's a CGT loss which can be carried forward......however as you're connected parties it can only be on capital gains with the same connected party i.e. ain't gonna happen

Angie_B

Do you have the extra £30-40k in savings for the deposit to pay the full market value? Or were you planning on you're dad selling you the property for the value of your £40k second mortgage with a 'gifted deposit' from your dad for the rest of the price?

If so, you may have problems with deprivation of assets if the worst comes to it and your dad needs care or benefits later in life.

bigmondy

That's what we were discussing Angie.

Gifting the remainder of the value after I give him some of the equity. But I wouldn't do it if that was a risk when it comes to his future security.

Never heard of the term deprivation of assets. Would it apply to such a potentially small sum as say £40- £50k? Is there a time limit?

bigmondy

Actually - now re-reading my post above - I wonder if he would be better off keeping the property in his name and I pay for the upgrades with a loan or something. That way it arrests the decline in condition, it can be used as a weekend holiday home and it passes to me when the inevitable happens (a while down the road I hope).

Getting a bit confusing as to what is best now.