Buying a house for parents to live in ..

CarolynSinclair

Bit of a dilemma. Inlaws have been happily renting a bungalow. It’s sadly now being sold. Getting alternative rental bungalow for (elderly) inlaws is proving impossible. We had a thought to club together and buy it. Inlaws putting in £50K (cash) thats their top spend and us £100k through mortgage or trying to raise funds through cashing in pension/increasing our existing mortgage.  Has anyone done this. Will it be classed as our second home for tax implications even if we don’t live there? How do we stop other sibling claiming half the money of our share when finally sold ..... Thank you for any advise. 

lucypilates

If your name is on the deeds, it will be classed as purchasing a second property on the share you own.

or possibly you could put a charge on the property (like a mortgage company would) and just your parents own it ... 

best to speak with a solicitor to advise what can or can’t be done in your individual circumstance

GDB2222

How would you structure this? You would own two thirds whilst your in-laws would own one third?

Would in-laws pay you rent on your two thirds? Will you pay for two thirds of maintenance and insurance? 

If you own two thirds of the property, there’s no question of siblings getting that. The one third that the in-laws own - well that is theirs to do what they like with.

There needs to be a deed setting all this down. That should include other terms you might not think of, eg you have right of first refusal if they want to dispose of their share and vice versa.

If they put £50k cash into the bungalow and you borrow your £100k as a mortgage on the bungalow, their £50k is at risk if you default on the mortgage. It would be better if you remortgage your own property to raise cash for the bungalow.

Yes, it will be a second home for you. Stamp duty 3% supplement will apply to the whole purchase price. I think!

Any capital gains that you make are potentially subject to tax, although you currently have quite a generous tax free allowance. Whether that will survive the post pandemic tax rises seems unlikely.

CarolynSinclair

Thank you so much, it’s given me food for thought which is much needed right now! 

Yes, we would own two thirds only, and be paid rent to contribute to the mortgage we raise, although we would make up the shortfall.

We would pay all maintenance and insurance. 

I’d forgotten about stamp duty! 

Grumpelstiltskin

Just because the landlord is selling the bungalow doesn't mean they will have to move out.

Is it being advertised as having tenants?

Has the correct notice been served?

Please give us a bit more detail.

GDB2222

You would also both have to complete tax returns each year, showing the rent and your outgo. That’s really quite a bit of work.

An alternative would be for the in-laws to take out the mortgage and you just act as guarantors. That might cost you much the same in the long run, without nearly as much of a palaver. 

CarolynSinclair

As the official owner has died, the family want to sell it. I hadn’t thought of it being sold ‘with tenants’ that gives a bit of hope. The agent has just informed me of the situation, and said there’s no initial rush, 3 months flexible. I asked for no letter of intent until next week as we only broke the news to them yesterday, and didn’t want them alerted without being told in person. 

AdrianC

The most sensible way of structuring this would be for the inlaws to buy it, you loan them the money, and put a charge against it for that amount.

Of course, that would require you to raise the money some other way than by a mortgage against this property... But I'm not sure you'd be able to get a mortgage on it anyway. Perhaps increase the mortgage on your own home?

GDB2222

At the moment, the family have to give six months notice to your in-laws. If in-laws are still there after six months, the owners would have to issue proceedings, and there’s around a year's backlog in the court system at the moment. So, they can still be there in a year or two, if they dig their heels in.

And, the family may not get a court order at all if there have been mistakes in the paperwork. 

CarolynSinclair

I had no idea GDB2222 thank you for that information.  

MaryNB

CarolynSinclair said:

As the official owner has died, the family want to sell it. I hadn’t thought of it being sold ‘with tenants’ that gives a bit of hope. The agent has just informed me of the situation, and said there’s no initial rush, 3 months flexible. I asked for no letter of intent until next week as we only broke the news to them yesterday, and didn’t want them alerted without being told in person. 

What do they mean by three months flexible? If it's in England, Wales or Scotland it's a 6 month notice to end the tenancy. I think Northern Ireland is 12 weeks.