Buying second property - parent making mortgage payments and living there??

kaymum

Hello,

We are looking to buy a second property for my mum to live in. We know we can get a second residential mortgage and have had this confirmed by the bank.
Our plan is that my mum will be living there alone and will make the mortgage payments (not sure if she can do this directly or if it will have to go in and out of our bank??). We will not be charging her rent, her payments will cover the mortgage. It will be our second home on paper only - she is too old to get a mortgage so this is why we have looked into doing it this way.

Will there be any tax implications for us doing it this way? IHT or CGT?

Is there anything else that we're not covering or thinking about??

I really appreciate any help you can give us.

Thanks in advance, Kaymum

mrginge

kaymum wrote: »

We are looking to buy a second property for my mum to live in. We know we can get a second residential mortgage and have had this confirmed by the bank.

...

Is there anything else that we're not covering or thinking about??

I really appreciate any help you can give us.

Thanks in advance, Kaymum

Did you tell the bank that your mother would be living in the property?

kaymum

No, we told the financial advisor and he said it would be a private arrangement between ourselves.

Bluebirdman_of_Alcathays

IHT, CGT, SDLT and Income Tax. Not to mention deprivation of assets. And Mortgage Fraud (the last one is a supposition, apologies in advance if untrue). Lots to consider.

mrginge

kaymum wrote: »

No, we told the financial advisor and he said it would be a private arrangement between ourselves.

Sorry to tell you this but your financial advisor doesn't have a clue.

flashg67

My thoughts are that you will become a landlord, with the tax & legal implications this comes with plus you'll need consent to let, unless you have a BTL mortgage.

You may well get consent to let, or you could just not tell the lender, but IMO, the advisor is being a bit naughty. I'd suggest checking the T&C's for your lender before you commit, or even check online now before you incur any fees

booksurr

Bluebirdman_of_Alcathays wrote: »

IHT, CGT, SDLT and Income Tax. Not to mention deprivation of assets. And Mortgage Fraud (the last one is a supposition, apologies in advance if untrue). Lots to consider.

and if that doesn't get you then POAT is the failsafe catch all for a parent paying to live in a property "owned" by their children

kaymum

We have no intention to commit any type of fraud. My mum is just too old to get a mortgage but she has guaranteed income (by way of widower's pension) so can make the mortgage payments. With the buy-to-let mortgages not allowing family we thought this was a better way. We are aware of the stamp duty on second properties, but as my mum's flat isn't terribly expensive this is something we have factored in and can afford.

kaymum

What is POAT??

G_M

kaymum wrote: »

Hello,

....
Our plan is that my mum will be living there alone and will make the mortgage payments (not sure if she can do this directly or if it will have to go in and out of our bank??). We will not be charging her rent, her payments will cover the mortgage.....

I'm afraid you misunderstand "rent"

You owe the bank £X per month.

Your mother can either
a) pay you £X per month which you then pay the bank, or
b) she can pay £X per month directly to your mortgage account at the bank.

* In practical terms, b) above is simpler.

* In legal terms, there is no difference - she is paying you rent which you are using to pay your mortgage.

You are a landlord. The rent is income (so income tax), and all other tenancy regs must be complied with (see link below)

The property is not your main residence, so Capital Gains Tax will apply.

As it is a 2nd property in your name, the additional 3% SDLT will apply on purchase.

In the event of your death (at any time) Inheritance tax will apply as the property will form part of your Estate so will be taxed as such. (the 7 year rule will not apply as no gift is being given to anyone).

* Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

AnotherJoe

Bluebirdman_of_Alcathays wrote: »

IHT, CGT, SDLT and Income Tax. Not to mention deprivation of assets. And Mortgage Fraud (the last one is a supposition, apologies in advance if untrue). Lots to consider.

Why on earth would there be IHT or deprivation of assets ??