Property Gifted, Re-Mortgage and Re-Pay?

Jackt90

I am looking for a bit of advice on this possible scenario. 

A property that is gifted from parents to a son or daughter. The son or daughter then re-mortgages the unencumbered property and then re-pays (via bank transfer) to the parents, the amount of which they agreed the sale (in this case it would be under market value). 

In this case the property requires substantial renovations to achieve habitable standards, hence a mortgage wouldn't be suitable. After the gift takes place, the beneficiary will propose to use cash to renovate, prior to re-mortgage.  

Is this possible?? 


Thanks 

getmore4less

Its not a gift if there is money to be paid back its a purchase with a loan from parents

There will be consideration, SDLT will apply to the linked transactions.

Jackt90

getmore4less said:

Its not a gift if there is money to be paid back its a purchase with a loan from parents

There will be consideration, SDLT will apply to the linked transactions.

Thanks. With that said, would IHT be avoided doing this, providing parents live more than 7 years? 

Brie

possible deprivation of assets should the parents require local authorities to fund their care?

is this somehow avoiding CGT in gifting the property and the child subsequently ungifting it by paying the parents?

ACG

Christmas day, I open up my present from you and I have to give you the money for my present? What you are suggesting is not a gift. 

Your son/daughter is buying a property off you. You are also providing the mortgage on that property which I assume is interest free and no repayments are due for a period. Put the property in their name, take a charge over the property in your name for however much you wish. Once the property has been renovated or in a mortgageable condition they can then probably remortgage to pay off the current "mortgage" ie you. 

Its probably a little more complex than that as you will need a solicitor to put a charge on the property and some lenders might not be happy with that situation but I am sure it would make a lot more sense than what you a re proposing.

Keep_pedalling

Jackt90 said:

getmore4less said:

Its not a gift if there is money to be paid back its a purchase with a loan from parents

There will be consideration, SDLT will apply to the linked transactions.

Thanks. With that said, would IHT be avoided doing this, providing parents live more than 7 years? 

No , because it is a loan not a gift. Technically if the parents gifted the house and were later gifted a sum of money  back it could increase IHT as the parents gift would stay in their estate for 7 years and the gift to them would be added as well.

How long have the parents owned this house? Unless it was obtained very recently they are likely to have a capital gains liability if they gift it.

Jackt90

Brie said:

possible deprivation of assets should the parents require local authorities to fund their care?

is this somehow avoiding CGT in gifting the property and the child subsequently ungifting it by paying the parents?

Hi Brie, 

It's more a case of child cannot afford to pay for the cost of the property + the renovations, prior to re-mortgage, hence they would in this case pay for the renovations and then use the proceed of the re-mortgage to pay the parents for the purchase, if that makes sense? 


Thanks 

Jackt90

Keep_pedalling said:

Jackt90 said:

getmore4less said:

Its not a gift if there is money to be paid back its a purchase with a loan from parents

There will be consideration, SDLT will apply to the linked transactions.

Thanks. With that said, would IHT be avoided doing this, providing parents live more than 7 years? 

No , because it is a loan not a gift. Technically if the parents gifted the house and were later gifted a sum of money  back it could increase IHT as the parents gift would stay in their estate for 7 years and the gift to them would be added as well.

How long have the parents owned this house? Unless it was obtained very recently they are likely to have a capital gains liability if they gift it.

Hi Keep Pedalling, 

Only a few years, however through acquiring planning and increasing prices, it will have appreciated. 

I am just wondering what the best solutions may be? 


Thanks 

Jackt90

ACG said:

Christmas day, I open up my present from you and I have to give you the money for my present? What you are suggesting is not a gift. 

Your son/daughter is buying a property off you. You are also providing the mortgage on that property which I assume is interest free and no repayments are due for a period. Put the property in their name, take a charge over the property in your name for however much you wish. Once the property has been renovated or in a mortgageable condition they can then probably remortgage to pay off the current "mortgage" ie you. 

Its probably a little more complex than that as you will need a solicitor to put a charge on the property and some lenders might not be happy with that situation but I am sure it would make a lot more sense than what you a re proposing.

ACG, thanks. 

To add, this is not currently a residential property, hence it cannot currently have a traditional mortgage attached. We are trying to avoid having to go down the route of renovations mortgage / bridging etc. 

There is currently no mortgage over the property, it's unencumbered. 

Thanks 

ACG

Son would buy the property off mum and dad using in essence a 100% mortgage which would be provided by mum and dad. 
It is all just a paper exercise. 

Son owns property.
Mum and dad have a charge on the property.

Charge gets paid off down the line when the property is in a position where it can be mortgages the conventional way. 

user1977

Jackt90 said:

ACG said:

Christmas day, I open up my present from you and I have to give you the money for my present? What you are suggesting is not a gift. 

Your son/daughter is buying a property off you. You are also providing the mortgage on that property which I assume is interest free and no repayments are due for a period. Put the property in their name, take a charge over the property in your name for however much you wish. Once the property has been renovated or in a mortgageable condition they can then probably remortgage to pay off the current "mortgage" ie you. 

Its probably a little more complex than that as you will need a solicitor to put a charge on the property and some lenders might not be happy with that situation but I am sure it would make a lot more sense than what you a re proposing.

this is not currently a residential property

So what is it, and what is it going to become? Might be more involved than renovation to make it mortgageable.