Buying a share of my dads house

hana8691

Hi, Im hoping someone can shed some knowledge on this subject?

My Husband and I have been renting a house of my dad for the last 4 years . My Dad owns the property outright so there is no current mortgage on it.

We really love the house so want to make it ours. My husband and i do not earn enough to buy 100% of the property but was hoping to buy a percentage and then in a few years go on to buy more till we eventualy own it out right. My dad is very much in favor of this.

Is this easily do able and is there any complications? Im hoping as my dad owns it out right it can be easily enough done.

any advice will be welcome!!

Annisele

It might be possible, but it depends on exactly what you mean. Buying percentages sounds complicated to me; there are possibly easier ways to achieve what you want.

I think you're wanting to buy bits of the house in chunks, but I'm not sure how you're planning to pay for those chunks (i.e. with or without a mortgage). If with a mortgage, you'll have trouble - you can't secure a mortgage against part of the house, so your Dad will need to be named on it.

One alternative could be for your Dad to lend you the money to buy the whole property, secured against the house (essentially a private mortgage). If he did that, you'd own the whole property from the beginning. He'd charge you whatever interest rate you agreed, over whatever term you agreed, and if you didn't pay he could repossess. He'd pay income tax on the interest you paid him, but not on your capital repayments. If you want an agreement like that, you'll both need separate solicitors.

hana8691

Hi, thank you for your reply,

Yes well the idea was to get a mortgage. Depending on how much the banks would lend us would have determined the percentage we could buy.
As previously stated the house is out of our financial legue so thought the only way of achieving ownership was to go down the shared ownership route and then hopefuly staircase to 100%.

We've not yet had the property valued but I estimate in the region of £400,000. We do have £20,000 deposit.

I'm interested in this private mortgage that you mentioned. However I don't quite understand how it works? I think my dad was hoping for a lump sump of money to aid his retirement. I would be really gratefuly if you could shed done light on this private mortgage route?

Many thanks

MisterB1959

a private mortgage can be anything you want it to be. the sticking point might be how much cash he wants to be freed up for his pension or would he be better off with a higher monthly return on which there is NO income tax to pay. he doesn't have to charge interest therefore its a capital return paid out over a period of time, a bit like him lending you the money to buy and not charging interest. ive recently leant my daughter about 30k to purchase/renovate. she will pay me back just the capital, there is no interest and therefore no hrmc IT issues.


as your father doesn't live there, he may have CGT to pay though?


if your father 'gifted' you the house, you could take a mortgage out on it after 6 months and release a large lump sum but you should take financial advice on the implications of all suggestions before proceeding !

booksurr

hana8691 wrote: »

My Husband and I have been renting a house of my dad for the last 4 years . My Dad owns the property outright so there is no current mortgage on it.

I assume your father does not live in the property as his own main home therefore if/when he transfers ownership it will be classed as a disposal for CGT purposes

further, because you and he are "connected persons", the disposal will be based on the market value of the property, not what you actually pay him. Father will thus have a CGT liability the instant he "sells" it to you.

the only way for father to avoid having to pay the tax is to only "sell" to you a % of the property which equates to his personal CGT allowance each year (currently £11,100). Exceed that and he will be taxed at 18% and /or 28% depending on the exact figures. The allowance will (probably) be increased each year (Tories have committed to in line with inflation) so it would take upwards of 30-35 years to pay it off in full doing it that way and looks to be a very bad return for your father if he needs the money

The private mortgage route means he , on paper, "loans" you the value of whatever % of the house he is selling to you that year . You then repay that to him and as mentioned above if classed as capital only with no interest element at all he would have no income tax to pay. If you cannot afford to pay up to £11,100 per year without getting a mortgage then as said above it won't happen without father becoming a party to the mortgage along with you. "shared ownership" where the majority owner is related to you is not something normal mortgage lenders deal with because of the extra complication in repossessing

hana8691

booksurr wrote: »

I assume your father does not live in the property as his own main home therefore if/when he transfers ownership it will be classed as a disposal for CGT purposes

further, because you and he are "connected persons", the disposal will be based on the market value of the property, not what you actually pay him. Father will thus have a CGT liability the instant he "sells" it to you.

the only way for father to avoid having to pay the tax is to only "sell" to you a % of the property which equates to his personal CGT allowance each year (currently £11,100). Exceed that and he will be taxed at 18% and /or 28% depending on the exact figures. The allowance will (probably) be increased each year (Tories have committed to in line with inflation) so it would take upwards of 30-35 years to pay it off in full doing it that way and looks to be a very bad return for your father if he needs the money

The private mortgage route means he , on paper, "loans" you the value of whatever % of the house he is selling to you that year . You then repay that to him and as mentioned above if classed as capital only with no interest element at all he would have no income tax to pay. If you cannot afford to pay up to £11,100 per year without getting a mortgage then as said above it won't happen without father becoming a party to the mortgage along with you. "shared ownership" where the majority owner is related to you is not something normal mortgage lenders deal with because of the extra complication in repossessing

Hi,

Thanks for all the information. As to your question, no my dad does not live here so is not his main residence. However do you know if there is a way of avoiding the CGT TAX? Say for example if my dad moved in with us for six months and makes it his main residence, and then sold it to us. Could we then avoid the tax issue?

Thanks again for your help.

booksurr

your father cannot avoid CGT by moving in, it will remain liable for the period he did not live there as his main home since he has already owned it for more than 18 months which is the max time you can claim back by moving in and then selling within that 18 month time frame. Moving in would reduce the total tax he would pay but unless he also sells off where he is is currently living all he will do is open up that other place to a CGT liability since patently it would then cease to be the main home

YOU do not have any CGT liability, the liability is all his, so please do not talk about "we" when asking questions about tax. Tax is levied on individual people not couples or families so talking about we just results in confusion

the only way to completely avoid CGT is as I said, he sells it to you in annual increments of less than £11,100 and will take >30 years for you to become its 100% owners