Buying a house with a parent

roje

My mum and I have both sold our houses and I have a mortgage agreement in principle. We want to pool our equity and buy a property together, but the mortgage is in my name only as she is in her sixties. I have explained this to my mortgage broker and he has achieved a mortgage agreement in my name.
What is our next step now? How does she transfer her funds to me without the money being taxed? Is there some sort of deed of trust she can sign? She will be living in the property in an annexe but she does not wish to be named on the deeds or to retain any of the equity as it will just pass to me at the end of her life anyway (she will be ensuring her will states that everything is to be left to me). Therefore she has no financial interest in the property and is not named on the mortgage.

Pixie5740

Gifts aren't taxed so your mum is free to the gift the money to you. However, I think there could be an inheritance tax issue further down the line. I think it has something to do with your mum gifting you the money but getting some benefit out of the gift (having somewhere to live).

You should also check with your broker that the lender is happy for a gifted deposit to come from someone who will be living in the property.

booksurr

Doesn't matter how she transfers the cash, there is no tax at all to pay on any money she gives you. No need for a deed, although the mortgage company will (may) insist that she signs a letter confirming the money is a gift and that she understands she has no rights in the property and could be thrown out if it is repossessed if you default on the mortgage.

however,
because she will be living in the property which was partly purchased using money she gifted to you that is classed as a "Gift With Reservation of benefit" (GWR) for the purposes of Inheritance Tax
what that means is the value of the gift never leaves her estate and when she dies (no matter how long that takes) and provided she was still living there at date of death the value of the gift is added back into the total value of her estate at date of death and her estate may have to pay IHT if the estate is then worth more than the tax free threshold amount for IHT (currently £325,000, or, if your father is already dead and left all his estate to your mother there is potentially also his 325k on top as well)

even if the mortgage company does not require the above letter it would be wise to have one anyway for IHT purposes so you and her estate have a record of the gift

caronoel

You may be able to get around GWR, if you rent a room back to your mum.

Would be fax free if the rent is under 4250 per annum, uner the rent a room scheme

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

booksurr

caronoel wrote: »

You may be able to get around GWR, if you rent a room back to your mum.

Would be fax free if the rent is under 4250 per annum, uner the rent a room scheme

https://www.gov.uk/rent-room-in-your-home/the-rent-a-room-scheme

that is true in principle, however to avoid GWR the rent charged has to be at market rate and mother would have to pay it for the rest of her life. If for example mother gave son £100k towards the cost of the annex the potential IHT on that would be £40k. It would only take 10 years for her to have paid that same amount in rent anyway. If she can afford to do so then yes there is a clear advantage to doing the rent idea as it means even more money is transferred out of mothers estate during her lifetime and thus avoids IHT, but the question has yet to be answered: is IHT a real danger for mother's estate?

Note:
- if rent is below market rate the GWR will still apply
- if the market rate rent would come to more than £5,000pa and she does not pay it, then mother will be caught by the Pre Owned Asset Tax rules - "POAT" and mother will be charged income tax on the rent free benefit that she gets from having had her money spent on buying the property even if she is not listed as its current owner