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

Bluebirdman_of_Alcathays

AnotherJoe wrote: »

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

Skim read on phone in pub and saw another foolish scheme that had totally not considered exchequer. You are right they wouldn't apply. All else does though!

kaymum

I'm confused, why would there be IHT if the property is in our names?

booksurr

Pre Owned Asset Tax - unlikely to apply in this case but it is there to catch scenarios where parents live rent free in a property owned by someone else but bought using the parent's money. Where does mother currently live: rented or owned? If owned what will happen to the money from her sale?

Your scenario is more likely to be dealt with as:
a) you are the beneficial owner of the property even though mother is paying the mortgage. You therefore will have a CGT liability when it is sold. You cannot claim tax relief (other than your personal allowance) because it is not your home, you already have one in the marital home where you live.

b) you will have an income tax bill because mother is paying off your mortgage so you are deriving an "income" from her. The fact the income is spent by you on your mortgage payments is irrelevant.

c) you retain beneficial ownership, so it is not part of mother's estate, it will count as part of your estate for your IHT.

G_M

kaymum wrote: »

I'm confused, why would there be IHT if the property is in our names?

Because it is an asset you own.

If you die, that asset will be taxed (unless the total value of your Estate is below the CGT threshold that applies at that time).

kaymum

OK, so it's looking like a no go area for us.

Does anyone know of retirement age borrowers getting mortgages approved? If we could give her the money for the deposit?

booksurr

kaymum wrote: »

OK, so it's looking like a no go area for us.

it is not a no go area

it is perfectly possible, but only if you play by the rules...
- declare the true status of the property when getting a mortgage on it. It will restrict the range of lenders wiling to quote, but someone will lend to you, just potentially more expensively

- either swallow the income tax you will incur on her payments or inflate her payments to cover your income tax liability (which will of course mean paying tax on the tax in a never ending cycle)

- deal with the sale of it when you need to and take whatever CGT is due then on the chin as CGT will only be due if it has gained (clue = Capital Gains Tax)

kaymum

Thank you for all your help. Too much to think about tonight. We need to go away and research more ideas.

It's so frustrating, all we want to do is help my mum!

G_M

kaymum wrote: »

OK, so it's looking like a no go area for us.

Does anyone know of retirement age borrowers getting mortgages approved? If we could give her the money for the deposit?

Yes a number of lenders have maximum ages of 75 - 85.

Try smaller building societies. or an IFA.

xylophone

Is your mother renting a property at the moment?

How old is she?

Kynthia

Some mortgage lenders are fine with a family member living in a second property and don't require a btl mortgage. If yours does then there's no fraud.

IT is only an issue if you die and your assets exceed the allowance. I can't see this being any reason not to but tge property. You will be liable for CGT when you sell but only if you have made a gain and only on a percentage of that gain. Plus you, and any other joint owner, have an annual allowance to reduce it a bit further. Also you can deduct buying and selling costs from the gain. So I wouldn't say it was a reason not to buy as you still keep most of the gain and pay nothing if there isn't any gain.

Deprivation of capital doesn't apply if you aren't using your mum's money to buy the property in someone's name other than hers.

There's the second home stamp duty which is a down side but it seems like you're prepared to accept that.

You'll almost certainly be considered a landlord for legislation and tax purposes. So you'll need to protect a deposit, get annual gas safety checks, install smoke alarms, etc. None of those should be too arduous and are good things for your mum that you might do anyway. So declaring the income for tax is the main issue. You can deduct allowable expenses but tge repayment element of your mortgage isn't one of them as that's equity you are building and will get back when you sell, so you are likely to pay tax on the taxable profit each year. If you're prepared to do that then the plan can go ahead.