Gifted property - mortgage implications

Determinedtobedebtfree

My mum has recently passed away and my dad’s decided that he’d like to sign the title deeds of our family home over to his children (me, my sister and brother). He’ll continue to live in the house (with a Liferent agreement). 

My husband and I bought a house nearly two years ago and we’re due to re-mortgage this year, will this have an impact on mortgage applications? There is no mortgage on my dads property but I wasn’t sure what happens for us re-mortgaging?

My brother is also concerned as he’s looking to sell his house and buy a new one this year. 

My sister is mortgage free. 

We’re so thankful to our dad and we’ve received advice from my dads lawyer about tax implications but we’re confused about mortgage implications. Any advice would be welcomed? Thanks 

clueless_but_curious

It has nothing to do with your credit file or income / expenditure, so, no.
It's a shame his pension was not enough to cover market rent as that is much better from an IHT perspective

Determinedtobedebtfree

Thanks, that’s great news. My dad was self-employed and he didn’t have a great private pension. I think that was discussed as an option but he went with the Liferent. 

We thought it would be OK but just wanted to be sure with rules around second properties etc. 

Thanks 

[Deleted User]

With certain lenders they may ask for tax returns to ensure you are declaring the rent as income. If you dont have them then they might take your share of the running costs of the property (utilities, council tax) as a commitment. 
This would be quite rare but i can think of 1 high street lender who might take this approach.  

Realistically though, for 99% of cases there wouldnt be any issues for a residential mortgage application

getmore4less

 "liferent"  is a Scottish term the equivalent in England being  the life tenant of an interest in possession trust. 

is that what you mean?

Might make sense for the part owned by the mother but not sure about the part owned by someone living as I think there are tax implications with it not being a IPDI trust.

what are you hoping to achieve with this arrangement?

Thrugelmir

Second home stamp duty will arise on future transactions by family members are long as they own part of the property. 

getmore4less

Thrugelmir said:

Second home stamp duty will arise on future transactions by family members are long as they own part of the property. 

Needs clarifying by op but  looks like they are setting up a trust to get round that issue.

Determinedtobedebtfree

Thanks for all the replies. My dad won’t be paying rent, so there will be no income to declare. My dad wants to do it while he’s well.

I believe the Liferent agreement protects his rights and allows him to live his life rent free in the house he worked so hard to buy. We live in Scotland. 

My mum had Alzheimer’s and he was always scared that their house would be taken away from them, he worked so hard to buy it. It’s an ex-council house worth around £200k and it’s been in the family for 40+ years, we all grew up in the house. He was in the process of changing his will etc. when my mum passed suddenly, so he’s taken guidance from his solicitor on how to protect his assets. It’s the best house in the street, biggest plot and fully upgraded so we don’t see it rising much in value.

We all support him, and are thankful, but just want to make sure that it won’t impact on future mortgage applications/house moves as we all hope our dad lives for many more years. 

Thanks 

PS The solicitor advised that additional stamp duty wouldn’t apply to a future purchase as we’d be replacing our main residence. 

getmore4less

He does not need a liferent to be able to live in HIS house rent free for life if he owns it.

The sole purpose of this arrangement is deprivation of assets to avoid potential fees where the house could be assessed.

Who will be the trustees

There may be tax implications of setting up a liferent trust in his lifetime.

Determinedtobedebtfree

Yes you’re right, it is HIS house and we’ve not asked my dad to do this, he’s taken advice about how he needs to protect his assets now he’s lost his wife. 

I don’t know who the trustees are but I know that my sister, brother and I are executors of the will and also now hold power of attorneys.  As I mentioned by Dad was getting things in order after my mums diagnosis but then she passed suddenly in December. It was an unexpected death and he wants to be prepared for the future. 

No paperwork has been signed as we were only told of his plans last week. We’ve had the tax implications explained in writing by his solicitor but my sister has been speaking with the solicitor. She’s mortgage free, so didn’t think to ask about mortgage implications which will only impact me and my brother.

Thank you to everyone who’s given a helpful response. 

Mojisola

Determinedtobedebtfree said:

he wants to be prepared for the future.

Shouldn't part of his planning for the future include having enough capital to fund a care home of his choice, should he ever need one?  I was really grateful that Dad had the capital from his house to pay the fees for the home that suited him best.