House swap with son

littlerock

We retired a few years ago but still fit and active. We live in a large 4 bed Victorian house in an area which has gone up in the world so is now worth a tidy sum. It is mortgage free. Our only child, our son, lives around 20 minutes away with his wife and two children in a 3 bed 1930s house on which he has a large mortgage. (His wife is a performer and self employed so her income is variable. Besides the children are very small at present.).

While not such a nice area as ours their house is well constructed and well modernised. We could live in it comfortably we feel. We have been discussing a house swap. We realise this would mean paying stamp duty which could be a pretty large sum for ours. Would it be possible just to swap houses with our son continuing to pay his mortgage on his house while we live there?

Browntoa

All kinds of tax liabilities

Deprivation of assets if you go into or need care

Your son's mortgage provider wouldn't allow it

moneyistooshorttomention

I think "deprivation of assets" is something that only applies if done within a 7 year time period before going into care??

- So - check if it is 7 years
- I expect OP isn't old enough to be in the age range where care homes become a possibility
- Though, obviously, many people never do go into care homes anyway (they remain fit or they refuse to etc).

Re the mortgage provider - they may want to be involved if there is still a substantial mortgage one way or another. But then - who is to say there would be? OP could sell their house to their son for a suitably low price (ie way lower than they would sell it for on the open market). That may be a possibility.

da_rule

The only tax liability for your son will be the stamp duty on the value of your house.

Op, you will have to pay stamp duty on your sons house value. You will also essentially be gifting the difference in value between your house and their house which may have inheritance tax implications for you/your wife if you die within 7 years.

In terms of deprivation of assets, you are only depriving yourself of the purpose of the gift is to take an asset out of the reach of the local authority or, if at the time of making the gift, it was anticipated that you would need care (there is no limit on how far back a local authority can look). Therefore, if your wife are both fit and healthy and the purpose of the gift is to help your family out (give them a bigger house) then you should be fine. Also, you aren’t depriving yourself of the whole value of your current house, just the difference in value between the two.

In terms of mortgage, your son could ask about porting it to your property. If your property is worth more then the lender may agree as it’s better security. Alternatively, he could do like most other people do when they sell and buy with a mortgage and redeem the current mortgage using funds from a different lender to be secured over the new house. It’s best to speak to a broker for this as some lenders have problems with family connected transactions.

There will also be legal costs and potentially mortgage costs (redemption fees, admin costs etc.) involved.

AdrianC

Your son could take on a mortgage of the same size as his current one, secured against the new property. This would be a much safer bet for the lender, because the LtV would be considerably lower.


Then you simply gift him the difference in equity.


So... (example numbers)

Now -

Him: £200k mortgage against £250k house.
You: £0k mortgage against £750k house.

After -
Him: £200k mortgage against £750k house.
You: £0k mortgage against £250k house.
Gift: £500k in equity.


It's not really that different to any normal chain, except there's a very big gift tied in.

As with any large financial gift, there may well be tax implications, as well as should you require residential care in the future and exhaust the value of your (£250k) property.

00ec25

moneyistooshorttomention wrote: »

I think "deprivation of assets" is something that only applies if done within a 7 year time period before going into care??

no, you are confusing that with inheritance tax rules
there is no time limit for deprivation of capital,

however, it is down to the council to prove that the reason for the swap was to deprive the owner of capital which could otherwise have been used to fund their care. Hence no time limit.

getmore4less

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm04020a

littlerock

house is in my name (owned before I met current partner) and I am currently i in good health with no ongoing medication at present so unlikely it could be seen as attempt to avoid health care costs.

AdrianC

"Currently in good health with no ongoing medication at the moment" says nothing about next week, let alone the next five or ten years.

moneysaver

I would assume you could live in your sons house no bother as long as your son tells his lender. He might also need to rent it to you with minimal rent which means changing his mortgage to BTL.

You can let whoever you like live in your house, no mortgage company to worry about.

There is no mention in your post about depriving assets, I assume you are not asking about this.


Moneysaver