Pooling resources with parents to buy a second property

Robbie100

I am a 29-year-old only child who earns £40,000 a year. I have £60,000 pounds in savings. My mother is 66 years of age. She earns £28,000 a year and she intends to work until 75. In addition to her work income, she is in receipt of the basic state pension of roughly £7,000 and a private one of £7000.

My mother is the sole owner of a leasehold flat last valued at £550,000 (probably around 600,000 now) and is the only person listed on the deeds. There is no mortgage on her flat. She has no debts of any kind.
My mother would like to arrange her affairs in such a way that puts me in financially secure position. She would like to retire in a house with a garden and intends moving soon. Her current flat is in a very desirable part of London with a calendar rental value of around £2,500 minimum.

We would like to buy a second property which we purchase through a combination some sort of remortgage/secured loan topped up with the £60,000 savings I currently have. If possible, we would purchase a second property outright in my name alone. At a suitable time, I would either inherit the original flat – or we would become joint owners. If it's not possible to find a second property within our budget we may need a relatively modest mortgage/ further personal loan. Is my mother likely to have problems securing one these?

Would a bank allow my mother to secure a loan on the flat she owns - to buy a house in my name that she would live in whilst using the rental income from her previous home to pay down that original debt? Would a prospective lender look favourably at this arrangement? Admittedly, it does seem rather odd.

I have no idea how much my mother would be able to borrow and would like those in the know to provide a little clarity here. Whatever she could borrow I would add 60k to help purchase another property. Given the time this might take to organise I might be able to up my contribution to 70k or 80k.

On top of that rental income, she is still working and in receipt of two modest pensions. In reality, I too would be pooling my income to assist where/if needed but given the rental income would the bank need that extra security? Would I need to formally involve myself in this arrangement? Given the large equity still left in her flat and a very secure rental income are there any big problems I might be overlooking?

I'm not going to be living in the UK so would ideally like to avoid being part of this arrangement. I assume it would be an issue to get a mortgage if I worked abroad particularly if I'm self-employed?

Any advice or suggestions regarding the above would be most welcome.

00ec25

Robbie100 wrote: »

to buy a house in my name that she would live in

that is almost word perfect for the definition of a Pre Owned Asset Tax (POAT) scenario

https://www.stoneking.co.uk/literature/info-sheets/guide-pre-owned-assets-tax

GreenSnake

Don't forget to plan early for care home fees.
Google "deprivation of assets".

Personally, I would keep it simple.

Your mother sells her flat.
She gives you the money.
You buy a house.
She lives in the house. You live / visit there too.

dimbo61

Or your mum sells her flat and buys a smaller/cheaper flat outside London and you buy your own property with room for Mum in the future.
IE downstairs shower room and (large seperate bedroom for mum downstairs)
HS2 now means even the poor people up north can visit London.
You and your Mum need to speak to an accountant and solicitor NOW

GreenSnake

That POAT link is interesting.
I know plenty of people who live in houses owned by relatives. I've never heard of HMRC taxing them on their lack of rent.

Reminds me of the old "schedule A imputed rent" rules.

So if I buy a house and my daughter lives in it rent free, then HMRC charges her tax because her lack of rent is a "benefit in kind?"

Is that the same with employees?
I've lived in work accommodation loads of times in the past. Always paid very little. HMRC never mentioned it. But maybe my employer's accountants had sorted something out?

00ec25

GreenSnake wrote: »

That POAT link is interesting.
I know plenty of people who live in houses owned by relatives. I've never heard of HMRC taxing them on their lack of rent. as you can imagine, the tax rules are rather more complex than the simple link I gave. In the main people are "caught" by the inheritance tax rules over gift with reservation ("GWR"), only if that fails would HMRC go down the POAT route.

Reminds me of the old "schedule A imputed rent" rules. them were the days

So if I buy a house and my daughter lives in it rent free, then HMRC charges her tax because her lack of rent is a "benefit in kind?"

Is that the same with employees?
I've lived in work accommodation loads of times in the past. Always paid very little. HMRC never mentioned it. But maybe my employer's accountants had sorted something out?

job related accommodation is also rather complex

https://www.gov.uk/government/publications/living-accommodation-hs202-self-assessment-helpsheet/hs202-living-accommodation-2015

Robbie100

I would like to thank everybody for their comments They have been a huge help. I intend to go and speak to both an account and solicitor but would like a little bit more advice because the comments so far have focused on where my mother would live afterwards. That is not a settled issue. I did not realise that her living in the ‘empty house’ I owned but bought with her investment would have such big implications.

Can you tell me your views based on the refined position of:
My mother re-mortgaging her current property – buying a second property with the money that generates alongside my savings and paying off her new mortgage with a very secure rental income, two pensions totalling £14,000 and a 28k income. Given our strong financial position is any of that likely to set off alarm bells? For the time being forget where she’d be living as it doesn’t necessarily have to be in the second property though initially that would be ideal.

The end situation we want to create is: I inherit two properties in the UK one of which I will be living in eventually and the other one generating a notable income stream. Given the time periods involved and my mother’s good health at the point of inheriting the debt on the original property would have been paid by the rent generated anyway.

Further information:
The reason we don’t want to sell her current property is that there is 1) sentimental attachment 2) it’s likely that I might return there at a future date 3) I didn’t think it made long-term financial sense:
The property can currently yield £2500 per calendar month. There are literally billions of pounds of investment going to be spent on new transport links, offices, homes and schools locally. So, the property now worth roughly £600,000 could easily hit 750 – 850+ in 10 years if not before. We’ve had estate agents pestering us all saying the same thing. One issue with this is that it coincides with the period of my mother’s retirement. We can deal with her age now as she’s still working – waiting would really scupper things

A secured loan?
Try for a second mortgage?

Slithery

Here's an idea...

Your mother sells her flat and buys the home of her choice to retire in. You buy your own house with the deposit that you've saved and a mortgage.

ScorpiondeRooftrouser

Live your own life. Visit your mother sometimes and talk with her.

Cakeguts

The answer is quite simple. Your mother can't put you in a secure financial position. The only person who can do that is you.

No one can predict what is about to happen. If your mother finds that she needs to retire on the £14,000 a year she may want to sell the flat, move somewhere cheaper and live off the rest of the money not needed for the new house. Your mother would not be any better off living with you because at the moment she doesn't have to pay for housing. Living off rental income is better if you spread the risk so that if one property is vacant you have another hopefully let and bringing in income.

Your mother's house may be needed to pay for care home fees. They will check if they think she might have given property to you in order to avoid the fees.

Do your own thing don't rely on getting money from anyone else. Buy your own house for yourself and leave your mother's money out of your planning.

Detroit

You want your 66 year old mother who is mortgage free, to get a secured loan to buy you a house.

She will work until she's 75 while also taking on the responsibilities of a landlady, while you're out of the country.

You, who will contribute £60k will eventually own two properties.

Your mother, who currently has £550k in assets, will eventually have nothing but her two pensions.

Is it me.....?