Gifted Money to Buy House - Repaying After Sale

AnotherJoe

They might be one of the many people that seem to think there is a "gift tax" (there isn't) and thus mentioning the amount would help. No harm done.

djclaz

Thanks everybody. The person giving the money would be my mother and so a trusted source.....I hope

Please forgive my lack of knowledge in the subject. The reason I mentioned £325k was that my understanding is that if it was above this amount, and my mother was to pass away within 7 years, I would be liable to pay inheritance tax, but as it would be less than this amount this would not be applicable?

Effectively the sale would be a cash purchase, with the view then being that when our house sold (we would continue to market it), we would repay with the proceeds. However, stupidly, I didn't think about the existing mortgage we have on our current house. 'AnotherJoe', you mentioned this, but can you just clarify? What would I need to do to get my mortgage switched to the new property (if it has already been bought outright) and pay the full proceeds of my current house sale back to my mother?

If I can't get to grips with it after this I think I am in too deep and will just have to suck it up and wait!

Thanks again

getmore4less

One way to structure this would be to port the mortgage to the new property if any penalties for paying it of or just pay it off and get a new one.

I don't think you can buy with cash and port later might depend on lender.
Getting another mortgage later can have issues some lenders will need at least 6 months ownership and your circumstances could change.


You do not want a gift you want to structure it as a loan, gift with a gift back just creates lingering PETs on both your estates.


Does your mum need the money back or could she just lend it to you long term and you pay her back over time,

looks like there is enough cash to not need a mortgage if she does not need it back in one go.

The reason I mentioned £325k was that my understanding is that if it was above this amount, and my mother was to pass away within 7 years, I would be liable to pay inheritance tax, but as it would be less than this amount this would not be applicable?

If your mother was a widow and inherited everything from hubby then it would £650k not £325k

AdrianC

djclaz wrote: »

Please forgive my lack of knowledge in the subject. The reason I mentioned £325k was that my understanding is that if it was above this amount, and my mother was to pass away within 7 years, I would be liable to pay inheritance tax, but as it would be less than this amount this would not be applicable?

A loan would be part of her estate, because it's still her money.
A substantial gift gets tapering relief over the years.
The IHT limit applies to her estate as a whole, not the size of the gift/loan.

Effectively the sale would be a cash purchase, with the view then being that when our house sold (we would continue to market it), we would repay with the proceeds.

So, yes, just a private bridging loan.

However, stupidly, I didn't think about the existing mortgage we have on our current house.

That's not an issue - you repay that when you sell the old house.
The question is whether you still need a mortgage on the new one? If so, then you need to declare that 80% loan as borrowed equity to the lender.

AnotherJoe

djclaz wrote: »

Thanks everybody. The person giving the money would be my mother and so a trusted source.....I hope

Its not your mum that needs to be trusted its you !


Please forgive my lack of knowledge in the subject. The reason I mentioned £325k was that my understanding is that if it was above this amount, and my mother was to pass away within 7 years, I would be liable to pay inheritance tax, but as it would be less than this amount this would not be applicable?

Your understanding is completely wrong. Just forget about it anyway.


Effectively the sale would be a cash purchase, with the view then being that when our house sold (we would continue to market it), we would repay with the proceeds. However, stupidly, I didn't think about the existing mortgage we have on our current house. 'AnotherJoe', you mentioned this, but can you just clarify? What would I need to do to get my mortgage switched to the new property (if it has already been bought outright) and pay the full proceeds of my current house sale back to my mother?
You wouldnt switch your current mortgage. You'd pay it off at the point of sale and get a new one.The solicitor will arrange transferring the money from the new mortgage plus the equity released from the old house, back to your mum.


If I can't get to grips with it after this I think I am in too deep and will just have to suck it up and wait!

Thanks again

Simple numbers.
New house £300k. Mum gives you £60k (nice mum!) and loans you £240k.
Now you have £300k and buy new house.

Some time later current house sells for 250k mortgage £150k so £100k equity.
So, to pay your mum back £240k you need to borrow £140k on a new mortgage because that plus your £100k equity = £240k.
The solicitor does all that. And adds fees, stamp duty etc (yes as said by another poster dont forget theres an extra 3% SDLT on the £300k = £9k which you reclaim after selling old house.



Simples.

AnotherJoe

AdrianC wrote: »

The question is whether you still need a mortgage on the new one? If so, then you need to declare that 80% loan as borrowed equity to the lender.

Hopefully not because OP's replacing it with a new mortgage to cover the whole amount. If not then yes it narrows the lenders but OP did say it was temporary.

AnotherJoe

djclaz wrote: »

Thanks, it is getting a bit more complex than I would like. I guess the other option would be for my mother to buy our house with the gift being the remaining cash for the new one. I just thought it would be more tempting for the vendors to have the cash ready.
Yes it would, why put yourself in the same position as any other buyer when you coudl be a real cash buyer?
Plus it would be outrageously expensive because your mum would have to pay solicitors fees plus SDLT on your house, plus the extra 3% SDLT and she wouldnt be able to reclaim it when she sold it.

There's also the 6 month "rule" on resales of house.

Just dont even go there.


Thanks for the extra info about the inheritance tax. The situation is as you mention and I wasn't aware of the higher limit.

Its not complex at all.

You do it in two steps (or even 3*) and a solicitor manages who owes who what.
You just need to be sure you can get a big enough mortgage on the new house when you come to do that by working out how much money you need to borrow. But you wont be taking out that mortgage until you've sold the old house.

* 3 steps
1. Buy new house.
2. Sell old one.
3 Get mortgage on new one and repay mum.


2&3 can be combined if you want.

AdrianC

AnotherJoe wrote: »

Hopefully not because OP's replacing it with a new mortgage to cover the whole amount. If not then yes it narrows the lenders but OP did say it was temporary.

I'm reading it as...

<random numbers>
New house purchase = £200k
£100k mortgage + £80k loan + £20k gift.

Old house sale = £80k equity due after repaying mortgage, used to repay £80k loan.

Perhaps the OP could clarify...?

AnotherJoe

Yes because using your numbers I read it as OP stating;

New house purchase = £200k
£160k loan + £40k gift.
£160k loan repaid by new mortgage which would be £160k minus equity in old house.


OP did say it would be a cash buy which it isnt if a mortgage is involved.(not to my defintion of "cash buy" anyway. It woudl just be "no chain" instead. Not quite the same.

AdrianC

Yes, that's where my assumption started off. Then there was the mention of porting the mortgage... Hence the request for clarification.