Buying part of my parents house to allow them to do some work

Skimad247

Hi,

I'm hoping I could get some advice? My parents downsized to a property from Wales to Somerset, as such the amount they could buy was limited due to the cheap property of Wales to rather expensive Somerset. The house they've bought needs some work doing to it and we thought that there would be enough money left over to do the work but after moving fees, stamp duty, some old debts their pot has dwindled. The work needs to be done but they've had quotes back of circa £50k for an extension but they have £20k left.

We are not keen for equity release as I don't think they have my parents best interest at heart and as my Dad is 83 they cannot get a mortgage.

One option I have offered is that I buy part of the property by releasing money from my mortgage eg. Their house is worth £400k and I would buy 10% for £40k, this would allow them to do the works.

My questions are 2 fold.

1. How easy is this to do? Can a solicitor draw something up quite easily?
2. How do I stand legally if they had to go into a care home? Would the 10% I own be ring fenced and be secure against the council taking the money from the house?

Any advice would be very welcome!

Thanks,
E

Mojisola

Skimad247 wrote: »

One option I have offered is that I buy part of the property by releasing money from my mortgage eg. Their house is worth £400k and I would buy 10% for £40k, this would allow them to do the works.

Why not just loan them the money?

Put a charge on the house so that your loan is protected and will be paid back if the house has to be sold to pay for care.

Skimad247

Thanks for the quick reply. How would I go about doing this? Is it still through the solicitor?

The reason for the idea of 10% is my mum doesn't want to feel like she's a burden so wants it to act as an investment. The amount I would pay back on £40k would be £55k after 20 years with interest.

oldwiring

I do wonder, if you did what you propose in your OP, you would become liable to the stamp duty surcharge as owner of two dwellings, on the sale of either.

Lending seems to avoid that possibility.

kidmugsy

(i) If care homes are their worry make sure that they own the house as "tenants in common" rather than "joint tenants".

(ii) After you've spoken to your solicitor decide whether you'd prefer to lend the money with a charge over the property, or to buy a fraction. Either way your money will be safe (as long as you can ensure that the property is properly insured). I'd guess that the loan is the simpler method because then there would be no need to specify how expenses such as decoration and maintenance are to be funded. Make sure that the charge (or alternatively the change of ownership) is registered with the Land Registry; your solicitor should look after that.

EDIT: i've just seen oldwiring's post #4: that's another good argument for the loan.

Skimad247

Thanks for the advice! A loan looks like the best option - do there have to be regular payment from my parents to me for it to be officially a loan or could it be a long term loan without payments?

Perhaps one thing I should add is that my Dad has dementia and we are in the process of trying to acquire Power of Attorney but this takes some time. I guess the loan would have to be just with my Mum as my Dad's signature doesn't carry any weight at the moment?

Mojisola

Skimad247 wrote: »

Thanks for the advice! A loan looks like the best option - do there have to be regular payment from my parents to me for it to be officially a loan or could it be a long term loan without payments?

Repayment could be specified as when the house is sold or similar.

No regular repayments would be necessary.

xylophone

You could make the loan interest free.

Or you could make the loan interest "roll up" until (for example), the house is sold.

Be aware though that the interest would be taxable in the tax year that you receive it.



The solicitor should draw up the agreement and register your charge against the property.

DairyQueen

The biggest problems associated with this kind of inter-family arrangement are associated with circumstances changing. I think you should all take legal advice. Your father is 83 and suffers dementia. He can't agree to a loan. Will your mother have POA? If you had POA, I would be very surprised if there wasn't a big problem with you agreeing, on behalf of your dad, for him to borrow money from you. A definite conflict of interest.

What happens if you predecease either parent? Unlikely, but possible. The debt is then called-in as it it is an asset on your estate. Are you married? Are you likely to be? If so, this debt becomes a marital asset.

What happens if you hit tough times: e.g. redundancy? You are obliged to pay the interest on this £40k regardless. If you suffer severe financial problems in the future your creditors could insist that your parents' home is sold to repay the loan (so you can repay them).

Do you have siblings? If so, you would be wise to discuss this arrangement with them before proceeding. Tensions and misunderstandings often arise within families when 'inheritable assets' become the subject of specific arrangements with one sibling.

Just a few thoughts that instantly occur to me. I'm sure there are many others.

I really think you need to see a solicitor.

MoneyGeoff

How about you loan them £55K interest free and have a charge on the house for £55K. Then they gift you £15K back. So in effect you are £40K down and will get £55K back when the house is sold.

That might avoid having to pay income tax on interest. Although maybe it creates inheritance tax issues?

teddysmum

kidmugsy wrote: »

(i) If care homes are their worry make sure that they own the house as "tenants in common" rather than "joint tenants".

If one goes into care, the house is not counted as an asset of that person, provided that the person left is a spouse, is over 60 or is a dependant. It doesn't even matter if the house is owned by only one of the couple ( I queried that on here some years ago and was referred to a section of Age UK's site.)


The only advantage of being tenants in common is that the person at home could leave their share to a third party, so if they pre-deceased the person in care, the authorities would not be able to have the money.


However, as the sale has been made and one person is not able to make legal decisions , the type of tenancy cannot be changed, anyway.