Selling my house to my sister

Daviddns

Myself and my husband have a buy to let mortgage on a property we currently rent to my sister. We would like to privately sell it to my sister.
My sister will soon be divorced and her financial settlement should be enough to clear off the mortgage we currently have.
However she would still owe us about £35k and will not be able to get a mortgage of her own... we are happy to set up a repayment plan (interest free) to repay the £35k
What would be the best way to arrange her purchase of the property so that my sister and myself are fairly protected.
Would I sell it to her for the outstanding mortgage amount and then create some kind of contact that she pays off the £35 she still owes us. Or do we clear the mortgage, keep the house in our names then wait until the £35k is fully paid before putting the house in her name.
Any advice on this would be appreciated.

HampshireH

Think of it this way...... what if she doesn't pay th 35k but it in her name.

You 're 35k short and she is sorted with a newly bought home for life.

00ec25

have you allowed for the fact you will have to pay Capital Gains tax given it is not your main home (you say it is a BTL)? The CGT will be due using the market value of the property, not what she pays you, because in legal terms you are "connected persons" and therefore the price paid cannot be used as that could be "manipulated" to reduce the tax due by selling it at a discount.

placing the house in her name should not be viewed as "risky" provided you secure your 35k loan to her by registering a charge against the property. Given you will have paid off the BTL mortgage, there will be no one else who needs to give permission so you simply replace the lender's "first charge" with your own "first charge" so if sis tries to sell the property you will be repaid in full as part of the sale. Your solicitor will easily be able to register a charge for you, just the same as they do for a mortgage lender.

your idea is perfectly achievable provided you document the loan to her as an interest free loan (so you do not have to account for income tax on the payments she makes to you) and you take a charge to secure it.

Daviddns

That's the advice I needed, it's exactly the kind of info I wanted. So thank you very much 00ec25 I didn't know about "registering a charge" so that's what I will look to do. We just wanted to know if it was something we could arrange (with the help of a solicitor....) before I get her hopes up. Also I don't believe I would be liable for capital gains tax as I haven't made any money on the property... Maximum £5k.... The property is in northern Ireland where there is a rather depressed property market. I only bought it 3 years ago when my mum passed away as it would have been hard to sell and my sentimental side wanted to keep the "family home" Now my sister will possibly be in a position to buy I'd gladly sell it to her.
Thanks again.

davidmcn

Why is nobody else prepared to lend her the money? It's relatively straightforward to set up a private mortgage, but you should probably consider what you'd actually want to do if she didn't keep up with repayments.

csgohan4

money and family should not mix, don't do it unless you don't intend to see any of it back

TBagpuss

You can protect yourself by having a private mortgage secured with a charge over the house. Like nay other mortgage -lender, this means that if she fails to pay, you can, ultimately, repossess and force a sale.

You need to be clear on that as you would hav to think about what would happen in a worst-case scenario if she didn't pay!

How long is she expecting it to take her to pay off the remaining £35K? You'll be losing the rental income and not getting anything back on your £35K investment if you do it interest free. You may want to take some legal advice and consider whether it would be better to include some interest, even if it is at a lower rate than if it were a commercial loan.

You could probably (speak to your solicitor) get it drawn up so it was interest free for a year then carried interest after that. What re the reasons she can't get a mortgage? If it is mainly down to being in receipt of benefits / being a stay at home mum, is any of that likely to change? If not, how confident are you that she will be able to meet the repayments?