Transferring Ownership from Son to Mum

Darkwolf

Hi.. Our Son and his Girlfriend bought a house together in joint names just less than a year ago. They bought the house for £83,000 and to help our Son we gifted him £15000 to help with the deposit and legal fees etc. Over the last year both have contributed to the bills including the mortgage. We have continued to spend a great deal of money helping them to improve the property. Unfortunately they have now split and both are living back with their respective parents. We have had two estate agents round to value the property and despite some wild valuations we realistically think the property will sell for around £85000. The problem is they took out a 5 year fixed rate mortgage. We have spoken to bank and they currently owe around £69,875. The redemption charge at present is 5% of the balance and is estimated around £3,493.. so total to pay off would be around £73,368. If you add legal costs and estate agent fees the amount returned after the sale would be around £10,000. My Sons girlfriend understands that we have invested a lot more that £10,000 into the property as well as the time we have spent. His Girlfriend is willing to walk away so we can re-coup as much as we can from the property. Neither of them earns enough to support the mortgage on their own, so to take his Girlfriends name off the property at this time is not an option until the property is sold or the Mortgage paid off to an extent he can afford it. Please note he as no intention of living in the property on his own.

The mortgage agreement allows 10% to be paid off each year without a penalty. Problem is even if we helped him by paying 10% off before the end to the first year in July and then another 10% after July the Mortgage would still be too high for him to support it on his own as he as other outstanding finance ( Car ).

We have put so much money time an effort into the property that it hurts to see it all get paid out in fees etc. I am due to retire at the end of August and will be receiving a lump sum. What we have thought is that we could use this to pay off the mortgage after deducting the 20% allowable lump sum payments. This would mean that there redemption payment now in its second year would be reduced as it would then be 4% of the remaining balance.

Long term we would like the property to be owned by my Wife who only as a very small pension as income. We would like to rent it out and use the income to subsidize our pensions.

Problem is I am unsure how to go about this, as every avenue I explore seems to involve significant cost. Would it be best to leave it in my Sons name or spend the extra to transfer it to my Wife?.. If anyone can help that would be great.

00ec25

if son gifts the property to you his mortgage will need to be paid off.

you will be treated as buying an additional property so will pay the +3% extra stamp duty rate (on 69k that will cost over £2,000 in tax)

close to retirement and a wife with no income suggests your chances of getting a mortgage in your own name is slim to non existent.

so, will your retirement lump sum pay off his mortgage? If it will the the better idea is you GIFT him the money which he uses to pay off his own mortgage. You do not pay to buy the property.

he then gifts the property to you with no mortgage outstanding on it so there will be no stamp duty to pay by you as you will not be paying any money to buy the property in your own name, so there is nothing to tax.

if you want the wife to run it as a letting then make sure you and her fully understand the tax position for both rental income and when it is finally sold

Fire_Fox

Welcome to MSE.

It reads to me a sale not a transfer of ownership. The ex-girlfriend's mortgage will be settled and your wife would take a mortgage out.

All these 'gifts' with strings have made a mess. If you hoped to recoup there should have been a deed of trust or suchlike.

How would you propose your wife and son own the property, tenants in common or joint tenants? If tenants in common how would the equity be split? How will that change when the retirement pot is thrown in the mix?

One possible spanner in the works is if the ex-girlfriend needs to claim means-tested state benefits in the next few years. If the ex-girlfriend has gifted away her financial interest in this property she may not be entitled to means-tested benefits.

Seeking to complicate an already messy financial situation on the cheap seems to me a recipe for disaster. I wonder if you would benefit from professional financial and/ or legal advice.

Darkwolf

Thanks for the response.... Yes the Lump sum will be enough for him to pay off the Mortgage and leave enough for us to enjoy our retirement. If he gifts us the property once the Mortgage is paid off then what are the tax implications on Rental and for resale. My Wife only as a very small private pension less £1,000 a year so would this affect the Tax for the rental ?. Also on selling the property in the distant future would CGT be payable on the full value of the property because it was gifted ?... Sorry to be a pain but I'm trying to find out what pitfalls may lie ahead.

Darkwolf

Thanks Fire Fox... Yes it’s a mess ... Problem is I knew I was retiring and had wondered about investing in property with my lump sum as have shares etc and not sure about Gilts. I have spent a lot of time working on the property and do not really want to go to the expense and uncertainty of buying another when I have already invested so much in this one. I have contacted a Solicitor and estimated the costs to get this in my Wife's name on it at around £6,000 with Stamp Duty, Selling and Buying fees , penalty’s etc.. If we simply decided to sell, it still needs work to get it to an adequate standard as work was ongoing when they split. Plus no one knows how long it would take to sell to get the full asking price. One the estate agents we had round was talking over 100 days?, so I would have to subsidize my Son with the bills over that period.

xylophone

Please note he as no intention of living in the property on his own.

Could your son and his girlfriend get permission to let for the next four years?

This would help them to pay the mortgage while they live with parents - they could sell to you if they wish at the end of that time?

Darkwolf

Thanks for the response xylophone.. They both want a clean split with no ties ... So his is now ex-Girlfriend wants to remove her name off the Mortgage.

Kevie192

Darkwolf wrote: »

Thanks for the response xylophone.. They both want a clean split with no ties ... So his is now ex-Girlfriend wants to remove her name off the Mortgage.

I'd like a Ferrari and a million pounds, but wanting it and getting it aren't exactly the same thing...

They've made this mess, so it's not really fair to expect you to sort it out is it?

TBagpuss

OK - step one, son and his partner should get a sparation agreement drawn up which makes clear that she is agreeing to trnaser the property to him and elinquish any claims she may have, in return for him taking on payment fo the outgoings and getting her name released from the mortgage asap (perhaps agree that this will be done on or befor ethe date the fixed ratte ends)

This protects your son against the risk f her changing her miond and decising, at a late rtime, that she would rather have the the 50% of the equity which she is proabbly legally entitled to.

As between you and your son, it may be possible to have a declaration of trust drawn up to protect your / your wife's interest without changing the legal ownsership. You would need to take advice about the tax implications of this.

A third option would be for you to lend your son the funds to enable him to pay the mortgage, until the fx ends and the property is sold. Could he live in the hosue and rent a room to a lodger until thn, to help cover the cost of the bills and mortgage?

If he doesn't want to live there and theffore you want to rent it out then you would need the lender's consent, which would probably mean that the ERC would kick in as he would haver to change to a different product.

So you could look at it as a straight purchase, where you and your wife buy the property, your son uses the money to pay off the mortgge and ERC, and you (or your wife) then let the property out to bring in some income, making sure that you you stick to all the obligations of a landlord., or at an arrangemetns where your son and his partner sell the property and take the hit on the ERC, and you don't get involved at all, expect perhaps to lend your son enough to pay the mortgage until sale at whioch pioint he can repay you for that, and for the other investments if the arragement was that they were by way of a loan not a gift.

diggingdude

If you "gifted" him £15k you haven't lost anything he has.

Darkwolf

Thank you TBagpuss - I think you are right in regards to getting a signed Separation Agreement prior to any further lump sum payments on the property. I take it this would have to be done via a Solicitor ?.

Once this agreement is in place we could then provide the capital from my Son to pay off 20% of the balance which we are allowed to do in the next few months ( 10% before end of July and 10% after ). We could then pay the remaining balance suffering the ERC ( 4% 2nd year ) down to a level where the lender would be happy for him to just have his name on the remaining Mortgage. We have already spoken to the Lender and they would be happy to offer a consent to let. Of course there would be the legal cost of taking his ex-girlfriend off the mortgage, and I am still trying to get quotes for this. As you say we could then draw up a declaration of trust with our son so that if the property is sold the balance of proceeds would provide him with the same proportion as the deposit we first gifted to him. This would them help him buy another property. I know some may thing I'm soft but family are everything to me.

This is a mine field and navigating it is proving to be a lot more difficult than I first thought .. so thank you to everyone that as passed comment. I just feel that all the so called professionals ( Solicitors and Accountants ) will only give me advice that means they get a pay day and not whats the best route for me... Call me cynical but one as to be wary.

If anyone can see any glaring holes in my proposed course of action please advise as all feedback is welcome.