Passing on Family Home Early -

dmmsta

We are looking at the potential of my mum selling her current house to me, and buying herself a retirement bungalow.

Her house is ~£350-400K (no valuation done yet)
There is a £50k interest only mortgage in play

The idea is:

1. I purchase her house for the amount need for the retirement place + outstanding mortgage.
2. She purchase the retirement place outright from the money I purchase her house with.
3. At the time of probate I for-go any inheritance of significant value as I will have essentially received mine early in the form of the current house(just any small items that she wants to leave me)
4. My brother inherits the retirement property as his major part of inheritance.
5. We agree (via her will I assume) that we address any shortfall between current & retirement property values at that time.

Thanks in advance...

LEJC

And what happens if there is a shortfall in nursing home care fees in the future....

I'm sorry but this type of thing has been discussed regularly and the way you have worded you post appears that you are sorting out main assets far before you know what the future holds....

bruich76

Land Registry will raise questions as will your solicitors as its a transaction at an undervalue. You could probably just about pull it off, however, you are going to have complications with Stamp Duty etc as technically a house or property has to be transferred for its full value and anything else is seen as tax avoidance. You also need to speak with an accountant regarding any tax implications as if the worst thing was to happen and passed away with 7 years - you are going to have a massive tax bill.

Mojisola

dmmsta wrote: »

[*]At the time of probate I for-go any inheritance of significant value as I will have essentially received mine early in the form of the current house (just any small items that she wants to leave me)
[*]My brother inherits the retirement property as his major part of inheritance.

I know two sisters who did a similar arrangement. Sister A had her 'inheritance' early; Sister B was going to inherit Mum's house.

Mum ended up in residential care, her house was sold to pay for it and the money that was left after she died had to be shared between the sisters because of the way the will was worded.

Result - complete breakdown in relationship between sisters.

dmmsta

Wow thanks for the quick replies.

Totally understand responses, and residential care wasn't accounted for

Perhaps I worded it badly - the OP wasn't a definitive description of the plan, more a high level overview.

My angle was to "feel the water" before engaging any formal legal counsel at a cost.

Based on responses is there a better way to do this - the main reason for the idea is that my side of the family is in a less strong (is that bad grammar) financial position to my brother they already own their home, and we are struggling to find a home big enough that we can afford to buy - currently renting.

I'm happy to accept a "not legal" or "not possible" response - we'll obviously all be talking about this in the family to make sure everyone is happy about the arrangement.

seashore22

My thoughts were the same as above. It has disaster written all over it because there is no guarantee that the mother will be able to hang onto her retirement property and one sibling potentially gets much less or nothing on the mother's death.

Also deprivation of assets may come into play because she is effectively giving a substantial proportion of her assets away to you.

Bluebirdman_of_Alcathays

Loads of rubbish being spouted about tax implications on this thread - OP go and see an accountant.

Keep_pedalling

bruich76 wrote: »

Land Registry will raise questions as will your solicitors as its a transaction at an undervalue. You could probably just about pull it off, however, you are going to have complications with Stamp Duty etc as technically a house or property has to be transferred for its full value and anything else is seen as tax avoidance. You also need to speak with an accountant regarding any tax implications as if the worst thing was to happen and passed away with 7 years - you are going to have a massive tax bill.

Sorry but this is wrong. You can sell your house for any sum you like and anything below the market price is basically a gift. SD will be charged based on the amount paid, although in this case if the OP is not planning on moving into their mother's house there will be an extra 3% to pay.

The plan has already been pointed out has the potencial to cause some serious family issues if long term care eats into the OPs brother's inheritance.

If the OPs mother does want to gift her children something then the fairer option would be to share some of the equity release from the house sale equally between her 2 children.

getmore4less

bruich76 wrote: »

Land Registry will raise questions as will your solicitors as its a transaction at an undervalue. You could probably just about pull it off, however, you are going to have complications with Stamp Duty etc as technically a house or property has to be transferred for its full value and anything else is seen as tax avoidance. You also need to speak with an accountant regarding any tax implications as if the worst thing was to happen and passed away with 7 years - you are going to have a massive tax bill.

shame none of that is anywhere near what would happen.

Starting with the land reg they don't care.

and finishing with a massive tax bill.
love to see your calculations for that one.
(good chance it would be Zero)

dmmsta

Just for clarity the question here is about the legal/financial implications.

Any internal family implications will be discussed, but I appreciate the comments on this element as they will need to be covered if/when we sit down.

getmore4less

your biggest stumbling block is 5. it will not be possible to account for a shortfall in the "inheritance" with your mothers will without complications.

if you start from a different angle.

Would you buy this house if it was sale?

ok you are(potentially) being gifted the difference making it look cheap/good value.

Would you still buy this house if it was actual cash?

Assuming this is still the right house there are other option to the scenario you outlined, they don't come without their own issues.

Whats the biggest mortgage you could get.

As one option is to raise more than you need and the extra goes to your brother now so the "inheritance" issue is reduced or eliminated.

The gift portion could be a debt instead but that will cause issues with getting a mortgage.

your brother could own part of the house again issues with the lender and CGT.

How much is the retirement place going to cost once you add the costs and £50k how much is left to gift?

round my bit of southern England bungalows start a £300k. retirement flats at £100k+