Buying my Parents Home and renting back

danielle.lee1982

hi there :-) My parents have recently looked into Equity Release (mortgage free home valued at £220k but would sell at £200k based on recent sales) I am looking into buying a property for investment purposes. I dont plan to buy another property in the UK as hoping to move abroad. They have offered to sell me the property for £175k as I will charge them £500 a month in rent to cover mortgage (other properties are rented for £800 a month) They live day to day on their state pension but have no funds for holidays etc
Mortgage advisor has said i can use the £25k gift as a deposit but will have to pay full Stamp Duty, solicitors have said this is fine, other siblings are happy, if i marry i will ensure property isnt included in joint assets, but could this be looked at as 'deliberate deprivation' of assets if either of them needed care in the future? mum is 74 and dad is 83.
Are there any other implications / potential problems we havent thought of?
Any advice much appreciated
thanks in advance

AnotherJoe

At worst you'd be depriving them of £25k so I dont see a big deal.

getmore4less

Why bother with a mortgage?

They lend you the money to buy the place off them and you pay that back on agreed terms.

theartfullodger

Sale and lease-back deals are regulated: Minimum 5 year tenancy, cooling off period, you ( YOU ! ) arrange an independent valuation etc etc..
https://www.citizensadvice.org.uk/debt-and-money/mortgage-problems/how-to-sort-out-your-mortgage-problems/sale-and-rent-back-schemes/


Buying for less than it's worth sounds like fraud to an ignorant 'uman like me...

Owain_Moneysaver

danielle.lee1982 wrote: »

I will charge them £500 a month in rent to cover mortgage (other properties are rented for £800 a month)

As they will be still living in the house and paying below a market rent this will be treated as a gift with reservation of benefit if Inheritance Tax applies (it might not, as it sounds like they have no other assets and total estate is under £325k.). If IHT applies, the value of the house at the date of death would be taken to be part of their estate for IHT purposes.

In addition, Capital Gains Tax could be chargeable to you (I think currently on the gain of £225k-175k) as you wouldn't have the primary residence exemption.

Deprivation of assets for care costs probably won't apply as they are selling the house for close to market value, but it may depend on what they spend the cash on subsequently.

Also selling their house and having a large amount of cash instead may affect their entitlement to income-related benefits, as the cash will count as an asset but their house wouldn't. If their only income is state pension it might be worth doing a benefits check to see if there is anything else they can get (Attendance Allowance isn't means tested, but Pension Credit is).

danielle.lee1982 wrote: »

if i marry i will ensure property isnt included in joint assets,

Not sure you can actually do that. Also note that if you can't keep up the mortgage repayments, or you are sued for a large amount of money for some reason, or you are made bankrupt, the house will be seized as part of your assets and your parents evicted.

What will your parents pay the rent with once the money runs out? Can you afford to maintain the property as a landlord including repairs and insurance after paying the mortgage?

You will have to pay income tax on the rental income.

G_M

Your mortgage lender will not permit you to let the property to family, even with a BTLmortgage.

if i marry i will ensure property isnt included in joint assets,

:rotfl: That's not how mariage (or divorce!) works!


The £25K would be a 'gift with reservation' since they continue to live in the property.


Yes, if they needed care, the £25K would be 'deprivation of assets'.

xylophone

Your mortgage lender will not permit you to let the property to family, even with a BTLmortgage.

A lot of lenders take this stance but you may find that a mortgage broker could assist.

Your parents can sell you their home at undervalue (gifted deposit) but it is possible that if one of them needed to go into care, DoA might be looked at.

In terms of IHT, the "gifted deposit" would be considered as a gift with reservation of benefit but each parent has an IHT allowance of £325,000 as well as the "family home allowance" so that it may be that IHT would not be a consideration in their financial circumstances.

If you married, it is likely that the home would be considered as a "marital asset".

AnotherJoe

G_M wrote: »

Your mortgage lender will not permit you to let the property to family, even with a BTL mortgage.
Good point.

Yes, if they needed care, the £25K would be 'deprivation of assets'.

Would? Might be more "might". Theres no certainty . By the time it came to light after the rest of the £175k had been used up, just maybe, if some one dug into the prices going back say 10 years and then could prove it was done deliberately for that reason. Indeed its less than half the £3k a year HMRC allowance for gifts (two of them) so actually I'd say it wouldnt be DoA.

I agree the biggest issue is one raised upthread, with that much cash, they would not be eligible for benefits.
Perhaps OP would be better to loan them the money on a schedule for an increasing % of the house. eg if the mortgage would be say £500/month, instead of paying that, he pays his parents that and theres an agreed rate at which he begins to own the house. And if they have no savings and they want a lump sum, he could start off with say £10k to them to get the process started and that would buy an agreed %. Better that than £175k sloshing around in their bank with all sorts of issues about losing money to inflation, possible fraud against them if they become infirm, and so on.

getmore4less

Might be better to use them as the lender and pay them back without getting a mortgage.

If they don't need the full £175k now.

swingaloo

So you would buy it for £25000 less than the true value then after they have rented at £500 a month for just over 4 years you will have had another £25000 back off them.

Then if they have to go into care they will only be able to afford the cheapest choice.
Nice.