Inheriting mortgaged property

Marco_Brandon

I think my question falls within several categories, but thought this forum would be the most appropriate one. I have set out my scenario below so I welcome your thoughts and comments.

My father is going to write a Will soon, leaving his home in Surrey to his wife (my mum). The house is worth just over £500k, with a mortgage of £319,000 (currently doing large capital repayments to bring it down!). On his death the transfer of the property would be exempt from IHT under both the spousal exemption and as a result of the net equity being under £325k (other assets in his estate are of negligible value).

I spoke with my dad openly and identified a potential issue. My mother does not work (and couldn't anyway due to a disability) and has no need to work as she is looked after by me and my two siblings, both financially and personally. The plan is for his three boys to inherit the property equally after both parents have died anyway. My dad said that he has no issue with us inheriting the property now by lifetime gift, or on death.

If my father left the property attached with a mortgage to my mother, I understand that the bank will not accept the mortgage in her name, as she is not employed and even if she was she couldn't afford the mortgage herself - correct?

Her option would be to either 1) sell the property, or 2) gift the property to the three of us. If she gifts the property to us the three of us would suffer quite a large SDLT bill (whether or not we own another home already); this is because the mortgage is consideration.

Alternatively, my father could leave the property to us in equal shares. The bank would look to the three of us and would very likely allow us to assume the mortgage in our names jointly, or we could source another mortgage elsewhere to pay off the existing one. The three of us are in well paid jobs and have excellent credit scores. Under this scenario, by assuming the existing mortgage following the death of my father, we would NOT incur an SDLT charge - is that correct? I believe it is correct based on HMRC guidance https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm00570.

My main question is regarding the mechanics of how the three of us can assume dad's mortgage following his death? Is it as simple as getting in touch with the mortgage company and transferring the mortgage?

I look forward to your comments.

Regards,

Marco

jaybeetoo

Has your father got any life insurance that pays off the mortgage on his death?

silvercar

If my father left the property attached with a mortgage to my mother, I understand that the bank will not accept the mortgage in her name, as she is not employed and even if she was she couldn't afford the mortgage herself - correct?

You can't leave mortgages to people. Generally if someone with a mortgage passes away, the lender will give the family some time (months) to sort things out. After which they will expect the mortgage to be paid off. Either by selling the property or by family members taking out their own mortgage to clear the one the lender gave to the deceased.

The only exception is where there is a joint mortgage and one person dies, then the other automatically is the sole mortgagee and there is little the lender can do about that provided the mortgage payments are still made. If your parents had a joint mortgage and your father went first, you and/or siblings could give the money to your mother to make the mortgage payments if you wish. You could even set it up as a loan if you wanted to protect yourselves.

Marco_Brandon

Hi, thank you for your response.

Interesting point about the joint mortgage. I didn’t know that. Would the lender allow my dad to add my mum to the mortgage? The property itself is solely owned by my dad.

Also, any thoughts on the SDLT points?

Marco_Brandon

Hi, thank you for your reply. Unfortunately he does not have any form of insurance.

PersianCatLady

Marco_Brandon wrote: »

Hi, thank you for your response.

Interesting point about the joint mortgage. I didn’t know that. Would the lender allow my dad to add my mum to the mortgage? The property itself is solely owned by my dad.

Also, any thoughts on the SDLT points?

I would contact the lender (your father, I mean) and run it by them.

I don't see how there would be any SDLT issues as your mother is the only one who could inherit the house and mortgage as it stands at the moment.

As PP said, if you were to inherit 1/3 of the hosue along with your siblings then the lender would give you time to pay off the mortgage and you would split the remaining equity between you.

Ms_Chocaholic

Marco_Brandon wrote: »

Hi, thank you for your reply. Unfortunately he does not have any form of insurance.

Wouldn't it be easier for him to get a life policy then at least you will know it will be paid off if anything were to happen to your dad.

PersianCatLady

Ms_Chocaholic wrote: »

Wouldn't it be easier for him to get a life policy then at least you will know it will be paid off if anything were to happen to your dad.

I thought that then I thought that perhaps there is a reason why the father is writing a will and has no life insurance (eg ill health).

silvercar

Marco_Brandon wrote: »

Interesting point about the joint mortgage. I didn’t know that. Would the lender allow my dad to add my mum to the mortgage? The property itself is solely owned by my dad.

I doubt you could add Mum to the mortgage without her also going on the deeds ie becoming a joint owner, though they could split ownership 1/99 or whatever proportion they like.

Of course, putting Mum on the mortgage and deeds is not necessarily to the lenders advantage and so I wouldn't offer to much explanation on why you are doing it. Mutterings about inheritance tax planning rather than safeguarding Mum's right to keep the mortgage may result in a sympathetic ear.

getmore4less

As the total estate of both parents is well under the £1m IHT nil rate band available, unless something changes IHT is unlikely to be an issue.

Another option is the 3 of you start saving so you have the cash when the time comes or help your dad overpay the mortgage to get rid of it ASAP.

This can be done as loans if you want.

Dad leaves the house as a life interest for mum with the 3 of you as remaindermen(currently the tax position stays the same as if mum owned it).


The joint route as above posts suggest would give more flexibility as the mortgage could keep going with 1/2 the house could be life interest.


You also need to consider other death orders like mum going first or 1 or more of you kids pre deceasing your parent(s).

if dad dies would anyone want to keep the house?
your mum may want to live there but do any/all of the boys want it?

A little confused that the kids are financially supporting the mum and not the dad?
Do they both live in this house?

getmore4less

https://forums.moneysavingexpert.com/discussion/5018456/taking-over-parents-mortgage

4 years and the mortgage has gone from £325k to £319k average £125pm


With 14 years left that needs to go up £1900 at least more like to over £2200pm including the interest.


Do you live in the house, also seems brothers have gone from 1 to 2 in 4 years.