Selling home to family member to raise money

sallycr

Hello
I wonder if you can help.
My parents own their own home fully and have just retired. They would like a little more income and so were looking at equity release.
My younger brother has just moved in with them though and so they were considering selling the house to him (but remain living there until they die/go into care) as in the village where they live he has no chance of owning his own home. This sale would be at much less than the market value. The house was on the market for many years and did not sell at £320k, I would guess a realistic market value is more like £280k but would want the sale to be nearer to £120K. The other three siblings are happy with this in principle so long as when the home is eventually sold by my brother we all get what would be our 'share' of the house . We see this as a way to get my brother on the property ladder, give my parents some income now and keep the house in the family and avoid equity release which seems such an expensive option. I am concerned though about CGT, also if my parents need care how this will be viewed (not on the horizon yet) and other issues I may not have thought of yet. Any help would be greatly appreciated as very confused!

Gigervamp

Other than the things you mentioned, is your brother planning on living with your parents until he dies too? Or would he like to move out at some point, maybe to have a family?

Would he be able to afford two sets of mortgage payments? Would he even be able to get another mortgage?

As your parents would be living there still, would they be paying rent? Would your brother need a BTL mortgage?

xylophone

Your parents can sell the house to your brother at below market value but the discrepancy would be regarded as a gift for IHT purposes.

As they will remain in the house and will not be paying him a market rent, this will be a gift with reservation and therefore not a PET.

If their total estate is below the IHT threshold this may not matter.

If they did pay him rent then they become his lodgers and they have no rights of tenure.

If they require care at some point there could be deprivation of capital questions.

If your brother married, would his spouse be content to live with her in-laws?

If your brother has to obtain a mortgage to buy the property, will the mortgage company be happy with the set up?

If sold to your brother, the house is wholly legally and beneficially his and you and your siblings could not require him to sell it on the death of your parents.

If he did sell it and gave you and the siblings cash, these would be gifts that would count against his estate.

All in all, this proposal seems to me to bristle with problems.

getmore4less

What are they trying to raise money for?

Is it some capital project or just more money.

Could they sell 1/3 of the house(say £90k-£100k) to the brother at full market value and the brother just pay it over a few years generating income for the parent.
No income Tax, CGT, PET, gift with reservation or deprivation of assets just an oustanding loan that is getting repaid.


Much will depend on what the brothers plans are.

xylophone

Could they sell 1/3 of the house(say £90k-£100k) to the brother

The parents and brother become tenants in common against a loan agreement between the parents and brother.

If the brother pays interest as well as capital repayments the parents will need to declare it.

In a few years time, the brother may want a house of his own.

The fact that he has this outstanding loan will need to be declared to the prospective mortgagee and may limit the amount he can borrow.

The prospective mortgagee might decide that the brother was seeking a second residential mortgage as the parents would in effect be mortgagees.

The rate of the new mortgage might then be higher than it would otherwise be.....

dancingfairy

How about cash as a loan to your parents with your brother taking a charge on the property?
Really given the potential issues with cgt/ charges/ deprivation of capital etc etc it would be worth seeking advice from a qualified professional.
Df

teddysmum

If the brother is expected to pass over two thirds of the house's value, when he sells, there won't be much left to buy a new property with.


Also, several people who post on here are intending to co-own a property with someone who may need care, as the assumption is that councils won't bother recovering the share of the person needing care ,as things are complicated.


However, if this becomes common practice, the rules may be changed so a council can grab ownership of that share and demand rent for it, if selling is not an option.