Children buying parents house

Kim786

Hello everyone,

I am considering buying my parents house (currently in my dads name) he has fully paid off his mortgage and currently resides in it.

I would be buying the property at a below market value I.e. 50k for a 90k market value property. I would be purchasing the property via a mortgage.

I also currently have a residential mortgage at the moment and I would be looking to do a second mortgage on the property. I can definitely afford to pay both mortgages, that isn’t a problem.

I’m just trying to understand what the pros and cons are with this purchase.

My questions so far are:

1. Are banks willing to offer a second residential mortgage? Or would I need to convert my current property to a buy to let and the new property as a residential.

Also how easy is it to convert a residential property into a buy to let? Is there a certain percentage of the property that needs to have been paid off before the mortgage can be converted to a buy to let?

2. What are the tax implications of a sale on below market value, I’m assuming my dad will have to pay tax on the sale of his property? I have read that the difference between the purchase price and the market value is classed as a gift.

3. Are there any implications on my father living in the property after I purchase it?

Thanks in advance for all your help guys. I know some of these questions should really be asked to a mortgage or tax adviser but any help would be greatly appreciated.

suki1964

Why is your dad going to sell his property to you and give up a secure mortgage free/rent free place to live, at the whim of the landlord ( you ) chucking him out

If its to avoid care home costs, its not ever going to work

00ec25

1. some will, some won't. Many would class it as a REGULATED BTL mortgage (google it!)

2. dad pays nothing. You will pay CGT (when you eventually sell it) on a property that would probably have come to you tax free upon parental death. So not the most sensible idea going.

3. many adverse oimplications for dad:
- the discount given is a gift with reservation for parental inheritance tax purposes, assuming IHT may be relevant when they die.
- It will not protect the property from care home fees as the discount may still be counted if needed
- dad might lose his home if you divorce or go bankrupt since you are the owner, not him, and he has no protection

Kim786

suki1964 wrote: »

Why is your dad going to sell his property to you and give up a secure mortgage free/rent free place to live, at the whim of the landlord ( you ) chucking him out

If its to avoid care home costs, its not ever going to work

It’s not to avoid care home costs. It’s to pay off his debts as he doesn’t earn very much it’s difficult for him to get a loan or remortgage.

Also I wouldn’t be charging my dad to live at the property. He would be living rent free - I have also read somewhere this too has some tax implications.

gary83

Being pedantic children can’t own property in the UK, other than that you’ve already had a lot of the cons of your cunning scheme explained to you, what are you thinking are the pros of this plan?

If your parents are genuinely in need of the cash it would make more sense to sell or remortgage the property potentially raising £90,000, what would they gain by selling it to you for £50,000 instead?

Kim786

gary83 wrote: »

Being pedantic children can’t own property in the UK, other than that you’ve already had a lot of the cons of your cunning scheme explained to you, what are you thinking are the pros of this plan?

If your parents are genuinely in need of the cash it would make more sense to sell or remortgage the property potentially raising £90,000, what would they gain by selling it to you for £50,000 instead?

Hardly a cunning scheme.

Also my parents do not earn enough to remortgage or get a loan of that amount. And they would rather sell to a member of the family to keep the house in the family and have more sense of security to stay living in the house if it’s owned by a family member rather than a stranger.

gary83

Sorry looks like you posted at the same time, looking at other issues you’d hit, have you thought about second home extra stamp duty? many btl providers won’t be happy with a family member living in the home? your parents would continue to live there rent free would you do the usual landlords duties in care and maintenance for the house? How would that work in practice? Seeing as presumably your parents have lived there for a considerable amount of time?

gary83

Although it’s a morbid thought how long do you envisage your parents to continue to be able to live in the home? Any less than 7 years would cause depreciation of assets issues, what happened if something unexpected happened to you in the future & you couldn’t afford to keep up two mortgages?

Kim786

00ec25 wrote: »

1. some will, some won't. Many would class it as a REGULATED BTL mortgage (google it!)

2. dad pays nothing. You will pay CGT (when you eventually sell it) on a property that would probably have come to you tax free upon parental death. So not the most sensible idea going.

3. many adverse oimplications for dad:
- the discount given is a gift with reservation for parental inheritance tax purposes, assuming IHT may be relevant when they die.
- It will not protect the property from care home fees as the discount may still be counted if needed
- dad might lose his home if you divorce or go bankrupt since you are the owner, not him, and he has no protection

Thank you for your advise.

Kim786

gary83 wrote: »

Sorry looks like you posted at the same time, looking at other issues you’d hit, have you thought about second home extra stamp duty? many btl providers won’t be happy with a family member living in the home? your parents would continue to live there rent free would you do the usual landlords duties in care and maintenance for the house? How would that work in practice? Seeing as presumably your parents have lived there for a considerable amount of time?

No worries I haven’t looked into second home stamp duty but will definitely do so.

In terms of maintenance I think my parents will pick that up seen as they’re staying rent free. But ofcourse I will help if needs be. To be fair the house is in good condition and has had some work done in the past few years, so shouldn’t really have any issues in that sense for a good couple of years.

Kim786

gary83 wrote: »

Although it’s a morbid thought how long do you envisage your parents to continue to be able to live in the home? Any less than 7 years would cause depreciation of assets issues, what happened if something unexpected happened to you in the future & you couldn’t afford to keep up two mortgages?

Definitely a morbid subject! And yes they would be living there certainly more than 7 years. If I was unable to keep up with two mortgages I would sell my other home and keep this one as it’s quite sentimental to me having grown up in that house.