In laws buying a property

Janetedkins01

Hi,

I'm sure this will sound very daft but I'm just looking for some help and reassurance!

My inlaws offered a sum of £200000 as a deposit on a house if we got a mortgage to buy a property in southeast of England (Kent), we're currently renting a small 2 bedroom maisionette in Kent and paying £950 a month and have been struggling to get any savings together, it was an amazing offer but however when we spoke to the bank about a mortgage we were told that because I have a debt management plan in place it would not be an option which we had suspected.

When we told my inlaws they offered to buy a house outright for us to rent for £500 pcm which is amazing .

They are very fortunate to have the money to purchase a house as cash buyers. They are looking to buy a 3 bedroom house with a garden for £350,000. The house would remain in their name and we would be there tenants (albeit paying a much lower rent). They have offered this as they want us to have a much more comfortable lifestyle and to be able to take our daughter on holiday and have family days out and for us not be so stressed in regards to finances.

What are the tax and implications of this? I'm not very savvy when it comes to technical terms and house buying and I'm concerned this is going to cost them an absolute fortune to this for us!

Guest101

Well they would be landlords and all that goes with that. (mainly in this case would be maintenance costs), but they still need to get annual gas safety done, issue you with the guide on renting, an EPC and perform the right to rent checks.


The £500 a month would be of course liable to income tax.


Seperately there's stamp duty to pay, and capital gains if they decide to sell down the line.

getmore4less

If they don't need a mortgage then there is a very simple way round the landlord tenant tax situation.

You become joint owners and they become your lender and give you an interest free loan for the rest.

To avoid the extra stamp duty they could just lend you all the money and you buy the house.


now that does not solve everything as it introduces new issues.

Janetedkins01

Thank you, I've asked them to help with drawing up a formal tenancy agreement which they don't think is necessary but I thought it let everyone know who's responsible etc for what and cover them and us should anything happen, is this sensible or me making to big a deal out of things? They've said that after 25 years of the rent payments they would be happy to transfer the house to us but they are both in the late 60s so not sure how that would work if they were to pass away before that point,

Guest101

Janetedkins01 wrote: »

Thank you, I've asked them to help with drawing up a formal tenancy agreement which they don't think is necessary but I thought it let everyone know who's responsible etc for what and cover them and us should anything happen, is this sensible or me making to big a deal out of things? They've said that after 25 years of the rent payments they would be happy to transfer the house to us but they are both in the late 60s so not sure how that would work if they were to pass away before that point,

It would be subject to inheritance tax, etc etc. let's not complicate it further.


If they want you to have the house, they should just give it to you now.


If you choose to gift them £500 a month for the next 25 years, that's upto you (and not subject to any of the above)

Pixie5740

It doesn't matter if a formal tenancy agreement is drawn up or not, you will be paying rent therefore a tenancy will exist and the rent you pay will be taxable income. When they purchase the property they will pay SDLT including the additional 3% SDLT. When the property is transferred to you then it will trigger CGT. If your inlaws die before the property is transferred to you then the property will count as part of their estate and be subject to IHT. So that's at least 3 different taxes they or their estate will be hit with.

A smarter way for them to go about this would be to set up a private mortgage arrangement with you. They lend you the £350k. You buy the property, you pay the SDLT (I'm assuming you don't own any other properties so the additional 3% won't be payable), and they put a charge on the property. When the loan is paid off they remove the charge. This means CGT won't be an issue for them and should they die the property won't be included as part of their estate.

Janetedkins01

Thank you!!! It's all very new! This has all happened in the space of 2 weeks and my father in law has found a property that's he's made an offer on, they've not bought a property in 40 years and I'm sure things have changed a lot since then, I was worried that this amazingly generous offer would back fire and cost them a fortune being a second home!

marliepanda

Is the £18,000 stamp duty not going to be an issue (assuming £350k house purchase)!

Mossfarr

Another possibility would be for your inlaws to purchase a property with their son as tenants in common. They don't have to have equal shares - as an example it could be 90/10%. As an owner you could then live in the property without the in-laws having all the hassles of being landlords. You could pay them back each month for your share of the property which theoretically, they 'loaned' you the money to purchase IYSWIM.
There are risks, mostly for your parents- in- law, so you all need to think it through very carefully and consult a good solicitor who specialises in this sort of thing.
I have done this with my daughter and its worked well for us.

xylophone

Thank you!!! It's all very new! This has all happened in the space of 2 weeks and my father in law has found a property that's he's made an offer on, they've not bought a property in 40 years and I'm sure things have changed a lot since then, I was worried that this amazingly generous offer would back fire and cost them a fortune being a second home!

On this basis, he'll pay the SDLT surcharge, the property will be part of his/his wife's estate, there'll be IHT considerations etc etc.

Ask your FIL to consult his solicitor about making you a loan of the full purchase amount so that the property is in the name of you and your spouse from the start.

getmore4less

Janetedkins01 wrote: »

Thank you, I've asked them to help with drawing up a formal tenancy agreement which they don't think is necessary but I thought it let everyone know who's responsible etc for what and cover them and us should anything happen, is this sensible or me making to big a deal out of things? They've said that after 25 years of the rent payments they would be happy to transfer the house to us but they are both in the late 60s so not sure how that would work if they were to pass away before that point,

if it is rent and you can't pay will they kick you out.


if they are going to give it to you anyway but still want you to pay something the loan route works fine.

£500*12*25 is only £150k anyway

they gift you £200k lend you the £150 and you start paying that back


You can then forget all the landlord complications and all the income tax issues

you buy the house no extra stamp duty

they could put a charge to cover the loan


If they have £350k sloshing about I suspect they need IHT planning advice before creating a big mess.

in general proper gifts don't make the tax situation worse to may be a good solution anyway.