Need advice with current family owned investment property.

moneyishappiness

Hey guys.

I've got a few little questions and a need to pick some brains.
So, I'm currently living at home saving my deposit for a property, I've had a few ideas but I'm unsure what would be best to do. My mother was a property developer back in her 20's, but lost it due to mistrusting my father, otherwise, I'd ask her for advice, but she's been out of the game for probably 25 years or so after losing her fortune, I digress.

So this is the Situation...
The home I am in is situated in the City centre 10-minute walk from the Train station, Hospital, City centre and approx a 15-minute drive from the nearest motorway. It has 4 Doubles and a small box bedroom with space for a downstairs flat.

The basement needs renovation, id assume approx £20k minimum. (Mainly a cavity membrane, a slab pour in the front room and some electrics etc. I'd want to do most of the work myself, i.e putting in the ring circuits, but having them passed by a sparky. I'm pretty hands on and have carried out a lot of work to the house already (Mainly plumbing, bathroom remodel etc)

I'm currently working self-employed + part time job. My business has made approximately £25,000 since April, with my part time making me £9,000. I've not paid myself as I'm currently living off my part-time job and have not set up PAYE.

I spoke to my mother (Who dislikes the current house due to its sheer size, it's a Victorian townhouse) about potentially trying to make some kind of income from it. It was the main reason for the property being purchased, I was wondering what would I be best to do..

One idea was to purchase my first home, but have my mother move there, keeping it as an asset for my future, while then staying at home and renting out the remaining 3 rooms, I've got a few close friends that have been looking for places to live locally. I'd eyeball £85pw for each room, so i'd be looking at £13,000 revenue in the perfect world. Ideally then I'd use that money to help pay off my property as well as putting some aside for a basement and attic conversion, potentially adding another 1-2 rooms to the property.

I'm really clueless as what the best options for me would be. My mother has said she is happy to do what I can with the current property as there is nobody else in our lives and she'd like to see me benefit from its original purpose.

Could anyone point out flaws or suggest better ideas that don't involve selling this property?

Massively appreciate any advice that can be given.

anselld

A few points rather than an overall answer ...

Who owns the current house?
If you buy a house which your mother lives in it will be subject to CGT.
If you already own the current house, the new one will be subject to SDLT surcharge.
If your mother owns the house but resides elsewhere it will be subject to CGT.
If you take in two lodgers the house will become subject to CGT.
If you take in three lodgers it will become a HMO and may require further modifications and licensing depending on the Local Council.
If your business is Ltd Co you should pay yourself at least enough to use your personal allowance in full as you may have more difficulty extracting the funds tax free at a later date.

Annisele

I don't have an answer either, but another point - how will you fund the purchase of the property your mother will live in?



A mortgage would be tricky (though not necessarily impossible). You couldn't have an ordinary residential mortgage, because you wouldn't be living in the property - so you'd be looking at a more specialist product. I'm not clear whether you own the existing property, but if not some of those specialist products won't be available to you.


Any reason for the new property your mother will be living in not to be in her name? It's usually (again not always!) better for everyone involved if each person owns the property they live in, rather than A owning the property B lives in and vice versa.

moneyishappiness

anselld wrote: »

A few points rather than an overall answer ...

Who owns the current house?
If you buy a house which your mother lives in it will be subject to CGT.
If you already own the current house, the new one will be subject to SDLT surcharge.
If your mother owns the house but resides elsewhere it will be subject to CGT.
If you take in two lodgers the house will become subject to CGT.
If you take in three lodgers it will become a HMO and may require further modifications and licensing depending on the Local Council.
If your business is Ltd Co you should pay yourself at least enough to use your personal allowance in full as you may have more difficulty extracting the funds tax free at a later date.

Annisele wrote: »

I don't have an answer either, but another point - how will you fund the purchase of the property your mother will live in?



A mortgage would be tricky (though not necessarily impossible). You couldn't have an ordinary residential mortgage, because you wouldn't be living in the property - so you'd be looking at a more specialist product. I'm not clear whether you own the existing property, but if not some of those specialist products won't be available to you.


Any reason for the new property your mother will be living in not to be in her name? It's usually (again not always!) better for everyone involved if each person owns the property they live in, rather than A owning the property B lives in and vice versa.

Thanks for taking time to reply!
So as it currently stands, my mother owns the current property. I've not purchased a property, only rented and therefore it would obviously be my first house if I were to purchase any property.

My business is a LTD company. I currently don't want to pull out any money from it as I'm living off a separate part-time job which in combination to a few little passive income side gigs takes up my tax-free allowance. Obviously, when the ball is in full motion, I'll leave my part-time position and pay myself a low salary + dividends, which should average my income to around £30,000 PA. after relevant tax.

Would it possibly be worth having the current house lived in by myself and 3 tenants as an HMO, and then using the HMO profits to cover the mortgage cost using the current house as collateral? Obviously in her name if that makes things easier?

The main issue for stuff being in my name, is that my mother doesn't want to bother with it anymore and would rather just settle as well as I initially would've planned to finance the mortgage of the house she'd live in with my own funds. I'm the only next of kin, so she said she'd want everything to go to me when she passes anyway, she said to me "If you can make money with this property without selling it, do it, I want to see you succeed"

What would the legalities of her having the stuff in her name while I would do the groundwork?

I still can't seem to figure out what would be the best method to generate income with the current situation that stands.

xylophone

Is it possible to convert the property into three flats, one for your mother, one for you and one to sell?

Annisele

moneyishappiness wrote: »

Would it possibly be worth having the current house lived in by myself and 3 tenants as an HMO, and then using the HMO profits to cover the mortgage cost using the current house as collateral? Obviously in her name if that makes things easier?

That sounds like a very complicated way of going about things. Complexity alone isn't a reason not to do something - but I do wonder if there's an easier way of getting what you want.


If your mum wants to live somewhere else, the least complicated way for that to happen (IMO) is either for her to rent somewhere in her own name, or for her to buy a new property in her own name.



It sounds like somebody - either you or your mum - would need a mortgage in order to buy a second property. All else equal, securing a loan on a property that you live in is much more straightforward than securing the loan on an existing property lived in by an adult relative (who lived there before the mortgage commenced) and who intends to use the existing property as an HMO. I'm not saying the latter scenario is impossible, but the first is simpler!



There's also tax to consider, both income and CGT (and possibly also IHT). I think it's unlikely that there's one single best choice for both you and your mum; there are risks with all options.


If you (or your mum) did buy a new property for her to live in, how much do you anticipate it would cost, how much does she earn, and how much deposit does she have? It might be that the finances simply don't stack up, in which case the rest of this is moot.

moneyishappiness

xylophone wrote: »

Is it possible to convert the property into three flats, one for your mother, one for you and one to sell?

Nope, the council put a restriction due to parking spaces. No more flats are permitted, but an HMO with up to 10 occupants is a viable alternative.

Wouldn't it be funny if those 10 occupants all had cars?

anselld

moneyishappiness wrote: »

Nope, the council put a restriction due to parking spaces. No more flats are permitted, but an HMO with up to 10 occupants is a viable alternative.

Wouldn't it be funny if those 10 occupants all had cars?

HMO with more than six occupants would require planning approval for change of use to Sui Genesis which could be rejected for the same reasons.

The Council may also require change of use approval to C4 for HMO up to 6 occupants if they have an Article 4 Direction in place. If you are serious about an HMO you need to check the local Licensing and Planning restrictions.

xylophone

Had your mother considered selling the property, using as much of the proceeds as required to buy something suitable for herself and gifting you the remainder as a deposit for a home of your own?