Transferring of property

Icebergggg

Hi all,


I wanted to gain more information regarding the actualpossibility, and various complications of the following:

My parents own a home that at current market value is likelyto be at the very least £240,000. There is an outstanding interest-onlymortgage with 12/13 years still left on the terms of the 25 year contract. Thisoutstanding mortgage is currently at £95,000. They are not in a financialposition currently or will be in the future to make any payments on theprinciple, I currently along with a sibling service the interest on themortgage for my parents. I believe it is more than possible for me to presumablytake on a £95,000 mortgage, to legally buy the property for a sale price of£95,000, that will allow my parents to close their mortgage account.

I would be able to qualify for a £95,000 mortgage, that isrepayments & interest over 25 years, especially considering the LTV ratiowill be approx. 40%. This is also if we do not take account of my other siblingin any official way providing monthly support for half the repayments.

- My issues here that I would like clarified arethe following:

- People are legally allowed to sell homes for anyprice they like, it is my parents main residence (which they will continue toreside in), I therefore foresee no Capital Gains Tax from the issue of (current market value – sale price) = some taxable liability, I believe what I have justexpressed would be correct. There would be no CGT consideration

- Presumably, this is entirely possible?Complicated to say the least. But the process of purchasing my parents propertyat below market value, of the value of the outstanding liability. Is not onlylegal but the original mortgage provider (who would also likely be my mortgage provider) would not object given they keep business and need to support thishangover from the financial crisis of unaffordable mortgage lending.

- Would I be subject to Stamp Duty Land Tax (SDLT)given the threshold for SDLT is a marginal scale starting from £125,000?

- In overview, could you provide me with somepractical thoughts in the scenario as described above. Just how feasible asolution could this be?


I would be grateful for any advice

mrginge

Two obvious issues spring to mind.

1. Deprivation of assets.
2. Lenders do not like people selling a house and continuing to live there.

Pixie5740

The 60% equity belongs to your parents. You will have problems finding a mortgage lender who will allow you to use a gifted deposit from your parents when they will continue to live there. You would really need to sit down with a mortgage broker to see if there's anything that can be done.

I'm not sure you'll be able to avoid paying SDLT. From Gov.UK...

"You may need to pay SDLT when all or part of an interest in land or property is transferred to you and you give anything of monetary value in exchange.

Anything of monetary value that you give in exchange is called the ‘chargeable consideration’.

The rules you use to work out how much SDLT you pay depend on the circumstances of the property transfer."

Both you and your parents should get separate advice so that you are all aware of the consequences of going ahead with such a plan.

Could your parents sell the property and use the 60% equity to buy something smaller/cheaper?

booksurr

Pixie is incorrect in respect of SDLT
you would be paying your parents a cash sum and the SDLT will be based on that and that alone as it is the sole chargeable consideration in the transaction. Any equity is irrelevant and of course you are not taking over your parents mortgage, you are getting one of your own, so there is no transfer of mortgage debt (which would be chargeable consideration had there been such)

you are correct re CGT if it has always been parental main residence for all the time they have owned it

your main concerns are:
a) whether you can do it at all with a new mortgage
b) if you do pull it off then obviously you and sibling as owners will be liable to CGt when you eventually sell

your parents main concerns are :
a) deprivation of assets (ie the equity they gifted to you)
b) homelessness if you or sibling go bankrupt or get married and have a divorce meaning the property has to be sold
c) as parents remain living there the gifted equity value will never leave their estate for inheritance tax purposes (obviously only an issue if their combined estates are worth more than £650k)

Icebergggg

Thanks very much
Pixie5740,
- The purchasing of the property for £95k will be a house sale, in which presumably I would obtain 100% of the property rights and my parents proceeds (the £95k) would be used to pay off their outstanding liabilities (the interest-only mortgage).
- SDLT would be subject to the chargeable consideration, which would be the sale price of £95k, which is below the SDLT initial band, you are legally allowed to sell a house for less than market value. this is the correct assessment, no?
- Downsizing wouldn't be an option given the current market presently.
mrginge,
1. I could put up some collateral, to bring down the LTV ratio somewhat marginally in the scheme of things, the LTV will be just shy of 40% if I do not post any other assets (cash, other property etc.) it is a case the asset would be the house, as that is sold to me. I would obtain a mortgage to finance that house sale/then my parents would use the proceeds of a sale to pay off their mortgage. I WOULD NOT be transferring over the outstanding mortgage.
2. They could easily be tenants like any other, there son will own their property, I can't foresee any real complication here. As I say as a basic premise, if it was just the sum of £95k, the mortgage I would have even in a stressed environment could be comfortably covered by myself.

Pixie5740

If you are buying the property for £95k you will not get a mortgage of £95k. You will need to have some kind of deposit especially if you require a regulated BTL mortgage (if you are going to charge your parents rent) or a second mortgage.

mrginge

Icebergggg wrote: »

mrginge,
1. I could put up some collateral, to bring down the LTV ratio somewhat marginally in the scheme of things, the LTV will be just shy of 40% if I do not post any other assets (cash, other property etc.) it is a case the asset would be the house, as that is sold to me. I would obtain a mortgage to finance that house sale/then my parents would use the proceeds of a sale to pay off their mortgage. I WOULD NOT be transferring over the outstanding mortgage.

I think you've misunderstood the meaning of deprivation of assets.

2. They could easily be tenants like any other, there son will own their property, I can't foresee any real complication here. As I say as a basic premise, if it was just the sum of £95k, the mortgage I would have even in a stressed environment could be comfortably covered by myself.

Unfortunately you don't make the rules, so the fact that you can't foresee any complications means nothing.

Icebergggg

booksurr wrote: »

Pixie is incorrect in respect of SDLT
you would be paying your parents a cash sum and the SDLT will be based on that and that alone as it is the sole chargeable consideration in the transaction. Any equity is irrelevant and of course you are not taking over your parents mortgage, you are getting one of your own, so there is no transfer of mortgage debt (which would be chargeable consideration had there been such)

you are correct re CGT if it has always been parental main residence for all the time they have owned it

your main concerns are:
a) whether you can do it at all with a new mortgage
b) if you do pull it off then obviously you and sibling as owners will be liable to CGt when you eventually sell

your parents main concerns are :
a) deprivation of assets (ie the equity they gifted to you)
b) homelessness if you or sibling go bankrupt or get married and have a divorce meaning the property has to be sold
c) as parents remain living there the gifted equity value will never leave their estate for inheritance tax purposes (obviously only an issue if their combined estates are worth more than £650k)

On the parents side, now I understand the expression deprivation of assets. They are in a position where they cannot even afford the interest-only mortgage currently and will have no way of paying the principle at the end of the terms of the mortgage. They are on disability benefits now, hence why I need to secure the property on their behalf. They will not forego any potential equity in the sense they would never realise it. This is about providing the security of a roof over their heads so to speak. I understand CGT requirements on my part down the line. I believe the biggest issue is the securing of a new mortgage on this complicated basis.

Icebergggg

Would equity in the house at fair market value of 60%, i.e., I only need a loan for 40% of the value. So therefore, presumably that 60% is akin to a deposit

G_M

booksurr wrote: »

...
you would be paying your parents a cash sum and the SDLT will be based on that and that alone as it is the sole chargeable consideration in the transaction. )

I'm not sure of this, but if the parents are going to continue o live there, rent-free, does that not have a value?

Dan-Dan

How are parents going to pay rent?
Do they earn?