Council Right to Buy Scheme - HELP

scottp_2

Hi,

I have a little problem for you. My mums partner has the opportunity to purchase his dads council house that he has lived in for a number of years. However, the house has to be firstly purchased by his dad, and then transferred over. This shouldn’t be a problem as the contract states that transfers can be made to immediate family without imposing a penalty, as if it is sold within 5 years you have to pay back a percentage of the discount.
The plan was for my mums partner to give his dad £25,000 to buy the house, and then transfer the house straight into his name, keep it for 5 years and sell at a profit (The house is worth around £90,000 already).
What would the implications be? I know CGT would probably be an issue, as well as deprivation of assets if his dad needs to go into a care home, but what else?
Something I suggested was it may be more worthwhile putting something in his dad’s Will stating that the house will go to his son, but this may cause a problem with his other son?

Any ideas on what they can do?

Thanks a lot!!

epz_2

wheres your partners dad going to live after 5 years, he will never get a council place again or rent anywhere near as cheap or having as good security of tenure.



now i would duck as the posts come in as you have essensialy asked for the best way to deprive us(the tax payers) of £25k and some other poor sod whos on the waiting list of a home.

I make no judgements as i dont think the government has any business being a landlord in the first place.

Debt_Free_Chick

Where will Dad live when he sells it?

seven-day-weekend

Where is his dad going to live when the house is sold?

Also, you are quite correct in saying that if he sells at a profit and it has never been the owners's main home he will have to pay CGT. However, there is an allowance of £9500 per year and other expenses which you can set off against it.

I'm not at all sure you can transfer ownership even to a member of the family within five years without having to repay the discount. Your mum's partner may have to wait five years before the transfer can take place.

I must warn you, be prepared for some flak on this thread; posters don't like to see people profitting from Right-to-buy (especially someone who DOESN'T have the RTB) and you will probably come across some negativity.

Debt_Free_Chick

I think the issues are

CGT (but there are reliefs/allowances)

Deprivation of assets

Loss of Dad's home, with no hope of replacing it at anything like the price you pay for it. If you sell for £90k a similar home will cost £90k. To rent a similar home would cost upwards of £450 pm

As epz said, other MSErs will post about the disadvantages to other people, with Council housing taken out of the stock and not available to those on the Council Housing list, but that doesn't address your specific question. (Some people would argue that this is Council/Government's problem anyway and that your mum's partner and his father are simply exercising a perfectly lawful right that they have)

scottp_2

I don't want to get into any arguments regarding depriving taxpayers and other council tennants etc, this happens all the time and there are worse culprits out there (Mr Brown?).

The issue with the house sale, obviously if his dad still wants to live there after 5 years, he would keep the house, but his dad may want to live in a small bungalow in an area where there are people to look after him (these retirement bungalow places) sooner rather than later, hence the reason he want to buy it while he has the chance.

Thanks alot for the replies they have definately given us something to think about!

Thanks!

Debt_Free_Chick

scottp wrote: »

The issue with the house sale, obviously if his dad still wants to live there after 5 years, he would keep the house, but his dad may want to live in a small bungalow in an area where there are people to look after him (these retirement bungalow places) sooner rather than later, hence the reason he want to buy it while he has the chance.

Which may well cost £90k as sheltered housing, plus a hefty service charge.

Honestly ... you would be selling to buy the equivalent, so you won't see the profit. You'll need to spend/reinvest it in the new property for Dad.

To be brutal, far better that Dad stays there and simply leaves the property to his son, in his will

Hapless_2

There is also the other issue of some councils put in the sale contract that if the property is sold within 10 years then the council has to be given first refusal.

monkeyspanner

There is a more straightforward way of doing this but it may not meet your relative's needs.

The tenant of the council house makes an application under right to buy. A valuation is done and discount applied. The tenant can then sit on that right to buy valuation for up to I think 2 or 3 years. In the meantime the value of the house may increase. If it decreases then the tenant can reapply for a new valuation.

Your relative can provide the funds to buy the property via a private mortgage. If the current tenant is on benefits then he can apply for benefit assistance with the interest on the mortgage. This assistance is calculated at a standard rate so it may not be exactly what is due on the mortgage. Obviously income tax would be paid on the interest paid on the mortgage.

In parallel with this a will is written leaving the property to your relative. When the house is sold the mortgage is repaid plus any outstanding interest and arrears. The proceeds of the house sale can then be gifted to your relative. As the proceeds are likely to be under the IHT limit there would be no liability if the current tenant died unless he has significant other assets.

There are implications regarding.
Maintainance.
Insurance.
Security of tenure.
deprivation of assets.

Swift1_3

A friend or family member giving a tenant money to buy a council house under RTB would be at risk of losing their cash as they would have no rights at all over the property. In most cases any deal thrashed out between these people would be totally invalid legally.

Anyone on benefits taking out a fresh mortgage would struggle to get anyone to pay off the interest for them and would be giving up all the rights and benefits of a secured tenancy.

Valuation wise, I honestly don't think the council will let anyone 'sit on' a price for a few years, they are keen for purchases to be made within a few months of the official offer.

Seems a dangerous venture for everybody involved really (especially the dad!)and I wouldn't go any further without getting masses of free advice and exploring every possible scenario.

nicola1982_2

Isn't there a law now stating all houses must be not be left unoccupied for over a certain period of time or the government can repossess it? Or did the law not get passed? If this is the case it would need to be occupied still for the five years.

As it will be an ex-council house neighbours may change frequently (assuming these are still council owned properties) and you have no guarentee that there will be nice people in the neighbourhood in five years time - this could significantly reduce the appeal of the house.

What is the area like? Many people I know who bought in ex-council estates during the boom as single people or childless couples are now trying to move and struggling to sell because they've realised the schools aren't good and the families they now want would not have the facilities they require. I was told by my midwife that we have had a baby boom this year - if this continues school catchment areas could become a bigger factor in house buying.

And has been mentioned earlier there is the ethical side to it. My partner's ex wife couldn't get a council house and ended up taking on a debt to pay a deposit on private rental. RTB is there to enable the council house renter to retire in a home they own. Your mum's partner is using this benefit with the intention of profitting from it. The more this happens the more likely the government are to remove this benefit in the future from the honest people who need it. I appreciate you don't want to debate (and I'm not trying to provoke a debate) about this but perhaps your mother's OH should give this some serious thought.