Buying part of parents house

ent_moot

Hello,

My parents are going through a really tough time and are near retirement, so I'm thinking of remortgaging my own home to generate ~120k , use this to fully pay off their mortgage, and therefore own about 1/3 of their home.

Firstly, is my bank likely to allow me to do this? My details:

Home value: 450k
My current outstanding mortgage: 158k
My salary: ~100k (I have a high salary, but am crazy-frugal because I want to retire at 40)


Secondly, would there be any fees / taxes I would need to pay to do this?

Also, another option might be for me to leave my mortgage as it is, for them to leave their mortgage as it is, and then for me to pay their mortgage payments via their account. This might even be better, because they have a fantastic mortgage (1.1%). However, could this be problematic because of capital gains tax or something?


Your advice would be greatly appreciated.

kidmugsy

Good for you.

It's not clear to me why your paying off their mortgage must mean your automatically owning a third of their house. You could arrange it so that you've lent them the money, at 0% interest rate, and that your loan is secured by a charge on the house. That would avoid taxation worries.

If you want to gift them the monthly mortgage repayment that too would be simple. if you wanted to treat that as a series of monthly loans, or annual loans, I suppose you could secure your money by a charge on the house that increases monthly or annually - you'd have to consult a solicitor about that. But then you (and they) are going to consult solicitors anyway, aren't you?

ent_moot

>>It's not clear to me why your paying off their mortgage must mean your automatically owning a third of their house.

I thought that if I just "gifted" them the money to pay off their mortgage, it would be subject to capital gains tax. Is this not the case?


>>You could arrange it so that you've lent them the money, at 0% interest rate, and that your loan is secured by a charge on the house. That would avoid taxation worries.

Thanks, this sounds like a good solution too. My parents are keen that it is something fair in both directions. Obviously, if I invested the money or bought something else I would likely make interest/rent, so they would be happy to pay some small rent (or interest if you prefer) so that they don't feel they are being a burden.

>>But then you (and they) are going to consult solicitors anyway, aren't you?

I would prefer not to - if it can be done legitimately without wasting money on solicitors bills, this would definitely be my preferred option. As far as I can tell, 95% of solicitors do is administration and pulling together information that I could do myself. Of course, if I see evidence that I am taking a serious risk by not involving a solicitor then I might do so. Aside from what might transpire from a family fall-out (which I think very unlikely), can you think of any serious risks in not consulting a solicitor?

jimjames

ent_moot wrote: »

>>It's not clear to me why your paying off their mortgage must mean your automatically owning a third of their house.

I thought that if I just "gifted" them the money to pay off their mortgage, it would be subject to capital gains tax. Is this not the case?

Can you explain what you mean? Who would be liable to CGT and when?

Aretnap

ent_moot wrote: »

I thought that if I just "gifted" them the money to pay off their mortgage, it would be subject to capital gains tax. Is this not the case?

Gifts are not taxable. You could gift them a hundred and twenty grand if you like and the taxman would not care a jot.* What they do with the money would be up to them - whether they pay off the mortgage or go on a round the world cruise it wouldn't result in a tax liability.

OTOH if you buy yourself a share in their house you might be setting yourself up with CGT tax issues in the future - as their house is not your main residence then AIUI you would be liable for CGT on any increase in value (on your share) between now and whenever it's sold.

Also any rent they paid you would be taxable income, from your point of view.

*The one exception would be if you were to die within 7 years of making the gift, in which case it would be counted as part of your own estate for inheritance tax purposes, subject to some annual allowances and taper relief.

teddysmum

Their paying rent would bring in taxation and legalities involved in being a landlord.


If you loan the money at 0% as suggested, you wouldn't be losing a lot because interest rates are poor, so they wouldn't be taking much from you, by not paying rent , as they would know that you'd get your money back eventually.


Would you not need a solicitor to make the charge on the property (protecting your interests) official ?

xylophone

Why not make your parents a regular monthly gift from your income to assist them with their living costs?

kidmugsy

ent_moot wrote: »

>>But then you (and they) are going to consult solicitors anyway, aren't you?

I would prefer not to - if it can be done legitimately without wasting money on solicitors bills

Oh dear me. Do you do all your own plumbing, electrics, gas, and car repairs too?

ent_moot

Oh dear me. Do you do all your own plumbing, electrics, gas, and car repairs too?

I'm a software engineer by trade, but I do all my own plumbing, electrics and building work. Gas and car repairs, not so much.

One of the reasons why I've paid most of my mortgage off by age 32 is because I don't waste money on low-skill jobs that I can do myself.

Like I said, as far as I can tell solicitors are over-paid administrators. There's no science to it and there's very little art to it. That leaves knowledge and admin. Being a computer scientist, I can probably do the admin faster than any solicitor. That just leaves the knowledge bit, which is all available online or in books. Occasionally forums help too, but mostly they just provide bad advice.

atush

One of the reasons why I've paid most of my mortgage off by age 32 is because I don't waste money on low-skill jobs that I can do myself.

Well done for a good thought- but a better thought might have been to increase pension (which gets tax relief) instead,

ent_moot

Well done for a good thought- but a better thought might have been to increase pension (which gets tax relief) instead,

That is definitely a possibility, but not the best option:

1) As I already mentioned, I plan to retire at 40, at which point my pension will not be accessible (admittedly this may be more like 45 now that I'm paying my parents mortgage too)
2) By overpaying my mortgage, I save hundreds of thousands of pounds in interest alone, plus I unlock lower mortgage rates saving even more interest
3) By overpaying my mortgage, I unlock the possibility to take a 2-3 year sabbatical in my 30s if I so choose because I will soon have "free" accommodation.
4) Owning one's house outright plus having a big chunk of cash savings is massive peace of mind. Having a few hundred thousand tied up in my pension while I'm still in my early 30s because of the tax benefits sounds a little like gambling.

Oh, and I should also mention that I'm already paying 15% of my salary into my pension.

Another option is of course investing and in fact I plan to split my disposable income between both my pension and index funds after my mortgage is paid. I accept that, net, I could make/save more cash by not killing my mortgage. However, I firmly believe that the surest way to achieve prosperity and safety for my family (aside from regular prayer) is to pay off my mortgage, and it is the advice I would give to anyone else with a family.