Buying percentage of parents house

Voyager01

Hi all,
First time poster here. I have some questions regarding a specific situation. I will explain in brief.

My parents are home owners with mortgage fully paid around 10 years ago now. They have a modest 3 bed Semi in the the Midlands, which is in need or some work and upgrades, including a single storey extension etc. Now neither of my parents work, my mother has raised all us kids of which there are more than half a dozen, so she has been a house wife for most of her working life. My father had a nervous breakdown about 15 years ago and hasn't worked since.

My wife and I are have been blessed with opportunites and both currently work in Switzerland and enjoy a good standard of living. We certainly aren't loaded by any standard and even by British standards I would describe ourselves as comfortable.. i.e we don't need fret when the winter gas bill arrives or the car needs repairs, and we have no debt.
Being the first born I feel a level of reasonability to provide for my family in a situation where my own parents cannot and in this circumstance ai would like o help my parents improve vastly their quality of life by helping with these home repairs and upgrades.

So my question is what available options do I have to enable me to do this, of course a direct cash loan would be possible, however my parents have little to no means to pay this back. A cash gift of course is another option I thought of, but I highly doubt they will accept this option of me simply giving them several 10's of thousands of pounds, they would want to ensure that there was some financial benefit/reward for me in the long-term. This is when I had the idea of potentially purchasing a percentage (20-25%) of their property, and so simply reciving the same percentage of any potential future sale. Of course I can see that my percentage stake could decrease in the event of a market crash. However on the other side It could significantly increase if the planned upgrades are carried out and they ever decide to sell.

Ok I've rattled on long enough.. do you think this option is possible and if so how do we get the ball rolling.

Kind Regards

xylophone

You can make your parents a loan and take a first charge on the property.

You will need a properly drafted, signed and witnessed loan agreement.

it would be possible to structure the loan so that interest rolled up - it would be possible to structure the loan on a percentage of equity on sale basis - it would be possible to structure the loan in an index linked basis.

But you would need to take into account income tax/CGT implications

Take professional advice before entering into any arrangement.

jimjames

Just to add to the previous post, you mention you are first born, you may want to discuss matters with your siblings in case they want to make equal contributions to the property. It may cause rifts in future if you buy out 25% or whatever and they didn't have the opportunity

atush

xylophone wrote: »

You can make your parents a loan and take a first charge on the property.

You will need a properly drafted, signed and witnessed loan agreement.

it would be possible to structure the loan so that interest rolled up - it would be possible to structure the loan on a percentage of equity on sale basis - it would be possible to structure the loan in an index linked basis.

But you would need to take into account income tax/CGT implications

Take professional advice before entering into any arrangement.

A loan is a much beter idea than buying part of the house

Voyager01

Thanks to those who have responded already, much appreciated.

So if I understand correctly it is better to make it a loan that is linked to a percentage of the sale price when it is sold? ... Which may not be for many years (parents in mid 50's to early 60's).

Could you advise why a loan is a better idea than buying a part of the house? And if it is a loan I am guessing I can only expect repayment upon sale as my parents don't have any other means to pay back.

I agree with squarring this to my other adult siblings if we did go ahead with this, although none are in a position to participate, I definitely better to be open about this in order not to store up potential problems on the future.

Thanks again all

xylophone

There is the extra SDLT implication on buying into the property and the CGT implication on sale.

As I said above, unless the loan is interest free, depending on the way it is structured, there could be income tax/CGT implications on sale.

Either way, you should take professional advice before entering into any arrangement with your parents.

Another thought, either way, as you are non-resident, there could be tax considerations in your country of residence and possibly more hoops to jump through here.

Paul_DNAP

Voyager01 wrote: »

Could you advise why a loan is a better idea than buying a part of the house? And if it is a loan I am guessing I can only expect repayment upon sale as my parents don't have any other means to pay back.

It's less complicated to say "I will loan you £x now, and your estate will owe me £y when you pass"


As "joint owner" of the property, would you be jointly responsible for all the upkeep, the insurance, the rates, the bills.


e.g. you already say they want to release the equity for home improvements. So say, you buy 25% of the house. But then as 25% owner of the house are you not also liable for paying 25% of the improvement they want to do to your house? Do they need to get plans and quotes approved by you?

Voyager01

Hi All, that is again for your responses. So if I loan £30k for example and agree it is only payable on sale.. how do protect that money from deflation. Keeping in mind a potential sale may be 20+ years away, would the way to do this be an index linked loan? What would be the best way to structure this, keeping in mind if I locked this money away I could get around 3%APR, and also by doing this I am also potentially increasing the future value of the property and also the inheritance of my siblings who are not contributing.

AnotherJoe

I would prorate it to the % of the house price when sold.
So 25% if the loan is for 25% of current price.

I have a similar arrangement with one of my kids.
Whilst PaulDNAP makes a good point regards gaining from the improvement and thus chipping in for those as well as the loan, you could argue that benefit is cancelled out by you locking a large sum of money away for many years.

Voyager01

Thanks for your reply.

So get 3 valuations on house in current condition, take average of 3 estimates and provide loan at 0%APR to 20-25% of that average valuation price and draw up an agreement that states I would receive back the he same percentage at future sale. It would seem fair on my part not to have to contribute an additional 25% of cost of works, because 1) I am locking my money away at 0% interest for a very long period of time, 2) there is always the potential risk of property prices drop and I might actually get back less than my original stake, which wouldn't really affect my parents as they bought the house at around a 10th today's current prices, so for them it's a win win.

xylophone

Before you make any arrangement, check on the tax position.