Selling a percentage of our home to our son

Diver

My wife and I jointly own a property valued at approx £380k with a mortgage of £125k. I have some debts I would like to pay off and also reduce my mortgage but we both really love our home and would prefer not to move.

My eldest son (aged 20) is in the army, based in Germany and earning about £23k pa. He is keen to get his foot on the property ladder but wants to stay in his army provided accommodation. He can afford a mortgage of approx £100k

I came up with this idea:
Have the house valued and then sell my son a % based on the £100k investment
Pay off £25k from my mortgage.
Pay off £50k of other debts
Invest £25k into the property

We would have a properly drafted agreement between my son, my wife and myself that would include:
My wife and I would own our % in common
My son would own a specific %
Any party could require the others to use best endeavours to sell the property at the market value within 1 year from notice.
My wife and I would continue to fund the property insurance.
My wife and I would continue to maintain and improve the property except where any such improvements projects would cost more than £5k. Over this amount my son would have the opportunity to invest according to his % or accept a reduction in his % ownership.

It seems to be an arrangement that works for everybody.

Anyone have any experience or thoughts on this.

Thanks

BettiePage

Would the property not be his (Edit:and his siblings)anyway when you and your wife have popped your clogs?

dolce_vita

So you want your son to pay off your debts?

Diver

BettiePage wrote: »

Would the property not be his (Edit:and his siblings)anyway when you and your wife have popped your clogs?

Our assets will be equally shared between our 4 children but hopefully not for 25 years or so. Minimissing CGT will only come into effect if my wife and I die earlier than expected.

Diver

dolce_vita wrote: »

So you want your son to pay off your debts?

Not at all. I am able to pay my own debts. On a recent leave he asked me about jointly buying a property with a friend of his in the UK. This option seems to be better for him and helps me. I see it as a win - win situation

BettiePage

Diver wrote: »

Not at all. I am able to pay my own debts. On a recent leave he asked me about jointly buying a property with a friend of his in the UK. This option seems to be better for him and helps me. I see it as a win - win situation

Seems a tad selfish and far to businesslike for my taste, but each to their own I suppose....

Diver

BettiePage wrote: »

Seems a tad selfish and far to businesslike for my taste, but each to their own I suppose....

I'm not sure how helping my son can be construed as selfish.

BettiePage

Diver wrote: »

I'm not sure how helping my son can be construed as selfish.

I fail to see how you're helping him...? You seem to be the only one that will gain anything from this deal imo.

Badger_Lady

Hey, if his son wants to invest in property, that's his choice and there's no reason why that property shouldn't be the OP's... although he should be expected to charge OP rent for his portion.

I'd be concerned about the clause "Any party could require the others to use best endeavours to sell the property at the market value within 1 year from notice." though - I thought you wanted to stay in the property? Isn't there a reasonably high risk that your son might want to withdraw his equity and buy elsewhere in the future?

I'd also look into whether your son could be liable to Capital Gains tax for his portion, since he would not be living in the property - the venture might not be as wise as he thinks.

If your son is not planning to charge you rent, he would almost certainly be better off buying a small flat to let out (doesn't have to be nearby - he can choose an up-and-coming area).

Is there an another motive for this proposal? Are you struggling with money?

PaulLuke

Technically this seems to work. I assume the idea is that your son, by owning a percentage of the property would benefit in terms of growth in house prices. However, I can see a number of pitfalls.

What happens if house prices start to falter/drop as your son could end up losing money on his 'investment'. As such I think he should charge rent for his portion of the house (in the same way as housing associations operate shared ownership schemes), which would help protect his investment against a fall in the calue of the property.

Bear in mind the difficulties that could rise if your son wants a sale and either you don't want to sell or are unable to, or you get an offer which one party feels is acceptable and the other does not. This clearly leaves open the possibility of family strife.

Your son will be liable to pay CGT on his share of the property when it is sold/you both die etc.

You need to make sure that your other children are happy with this arrangement as, if house proces do increase one son is potentially benefitting at the expense of the other children.

Although on initial view this may seem a good idea I suspect it is likely to prove more poroblematic than you realise. If you do decide to go ahead I suggest you and your wife and your son seek independent legal advice (I think this would need to be from different solicitors as I can see several potential conflicts of interest in the whole arrangement)

Diver

BettiePage wrote: »

I fail to see how you're helping him...? You seem to be the only one that will gain anything from this deal imo.

I may have confused this by not explaining clearly enough.:o

A financial pitfall of being a career soldier is that whilst it is easy and financially sensible to utilise army property to live in, at the end of a career soldiers often find themselves unable to afford purchase of a home. One option is to try to get onto the property ladder at an early stage.

It could be argued that property can decrease as well as increase but over the medium term property prices are likely to increase. Because of this my son has made the decision that he wants to get onto the property ladder at an early stage.

For his own reasons he is not interested in buy to let. He is seriously considering buying a house in the UK with a friend of his. My son’s part of the bargain will be to stump up 50% of the purchase costs plus the ongoing commitment of 50% of the “non living” costs such as; insurance, maintenance etc. In return he will get the right to live in the property when in the UK (5 weeks a year at the moment) and be entitled to his share of any capital appreciation.

I didn’t know of his intentions to buy with a friend until recently and it was during the conversation that this idea came to me. It seems to me that of the two propositions he is currently considering the one I came up with is better for him.

I fully appreciate some of the potential legal concerns (hence my posting) but these issues are there with both propositions. My concern at the moment is “what have I missed?” I’d rather consider it now than later when sitting in front of a lawyer at £50 per hour!