Buying house together with Mother in law but MIL not on the mortgage - tax?

MrsDippy

Hi there,
Please help me try to make my family dream come true.  Myself and husband have found the house of our dreams and we want to live with my husband's mum  (MIL - Mother in law). We all get on super well and have thought about this for years. We are nearly there, we have found the house, had the offer accepted, my husband and I are selling our house and my MIL the same, offers accepted all round. Deposits all ready. Mortgage is fine. Everything going great, everyone getting excited. Then my solicitor and my financial advisor cant agree and I cant become an expert in their fields to sort it out. I am literally eating comfort cake and going grey!

The solicitor is saying that my MIL must be on the mortgage as a legal owner. My Financial advisor is saying no, that is not needed and not possible. We don't want MIL on mortgage as my husband and I are going to pay is off. Financial advisor says that she is too old for mortgage of the length we need (MIL is retired), 3 people on mortgage too tricky and not needed. My solicitor is saying that he will need to tell HMRC what we doing and we will need to register as a Trust and HMRC will want tax if MIL not on mortgage.  I am trying to do all things properly but have no idea what I am doing and they keep sending me back to the other one. I am happy to tell HMRC - but what will then happen, worried I will lose hard earned money because I don't know enough.

I literally ring one sort it with them, then ring the other one and back to square one.  Then eat cake. Then the next day I start again.
Please help otherwise cake shortage looming in my local area.  Thank you.

K_S

@mrsdippy A couple buying a property together and a parent living in the house with them is not uncommon and plenty of lenders will be fine with that. As a non-borrower adult occupier, the lender might require that she sign a 'occupier consent form' but that should be it as far as complications are concerned. Do you already have a mortgage offer and has this issue come up at conveyancing?

I might be missing details in the background or misunderstanding your post but it's not clear to me what the solicitor's objection is about. Is it to do with her funding the deposit for the property but not being on the mortgage or not being on the deeds?

Thrugelmir

One objection presumably is that your MIL will have a financial interest in the property by virtue of the funds being injected into the purchase. Given that advice needs to be sought from independent solicitor prior to completion of a  'occupier consent form'. The likely outcome is that this solicitor will advise their client not to sign. As in effect it waives away all her legal rights and remedies. Simply signing the form without advice would leave the mortgage lender themselves exposed in certain circumstances. 

mdcooper88

You need a trust deed drawn up between the 3 of you. 

It sets out who has what share (should things go wrong later and you then need to sell).

I had this when we had a house with my partner and parents, and it was a good thing we did as we then got divorced later and my partner tried to take half of everything. If we didn't have the trust deed it would have been a lot harder to fight it.

It just protects everyone's interests but still allows you to purchase without your mother in law having any mention on the deeds or mortgage. 

MrsDippy

Thank you all for advice, really appreciate it. So further detail may help. My husband and I are selling our current house and my MIL selling her house. Equity from both houses are the total deposit for new big house. We are setting up a deed of trust to pay back MIL deposit, and then our deposits should we sell and divvy up and remaining equity. The mortgage is arranged for my husband and I so we are the legal owners. As MIL is not on mortgage MIL is not legal owner. So I *think* this is the issue. Solicitor is saying HMRC need to know and that we will have to register as a Trust, unless MIL is on mortgage. We don’t want MIL on mortgage but don’t understand the implications if she is not - we will get taxed over this at some point? What is the purpose of registering the Trust with HMRC? Is this seen as liable for inheritance tax? Ok off to find cake for breakfast… thank you for any further advice this forum is super.

Thrugelmir

I'd suggest you discuss the matter further with the solicitor. As they are the ones implementing your instructions. 

FrugalCat

MrsDippy said:

Thank you all for advice, really appreciate it. So further detail may help. My husband and I are selling our current house and my MIL selling her house. Equity from both houses are the total deposit for new big house. We are setting up a deed of trust to pay back MIL deposit, and then our deposits should we sell and divvy up and remaining equity. The mortgage is arranged for my husband and I so we are the legal owners. As MIL is not on mortgage MIL is not legal owner. So I *think* this is the issue. Solicitor is saying HMRC need to know and that we will have to register as a Trust, unless MIL is on mortgage. We don’t want MIL on mortgage but don’t understand the implications if she is not - we will get taxed over this at some point? What is the purpose of registering the Trust with HMRC? Is this seen as liable for inheritance tax? Ok off to find cake for breakfast… thank you for any further advice this forum is super.

A trust is legally complex and best avoided, if you don't want to pay the solicitor regularly to deal with it.

Perhaps the solicitor is disagreeing with you as he's looking after your MIL's interests as well, whereas your FA isn't?

If the MIL is okay with essentially gifting you her equity, that needs to be clear to the solicitor.
And then the easiest way is to do that as a separate transaction - she gifts you the proceeds of her sale (gifting is tax free, but subject to inheritance tax, should she pass in the next 7 years), you go buy a house with it.

user1977

FrugalCat said:

MrsDippy said:

Thank you all for advice, really appreciate it. So further detail may help. My husband and I are selling our current house and my MIL selling her house. Equity from both houses are the total deposit for new big house. We are setting up a deed of trust to pay back MIL deposit, and then our deposits should we sell and divvy up and remaining equity. The mortgage is arranged for my husband and I so we are the legal owners. As MIL is not on mortgage MIL is not legal owner. So I *think* this is the issue. Solicitor is saying HMRC need to know and that we will have to register as a Trust, unless MIL is on mortgage. We don’t want MIL on mortgage but don’t understand the implications if she is not - we will get taxed over this at some point? What is the purpose of registering the Trust with HMRC? Is this seen as liable for inheritance tax? Ok off to find cake for breakfast… thank you for any further advice this forum is super.

And then the easiest way is to do that as a separate transaction - she gifts you the proceeds of her sale (gifting is tax free, but subject to inheritance tax, should she pass in the next 7 years), you go buy a house with it.

Though lenders won't treat that as a "normal" gifted deposit if the gifter is going to be living in the property (not exactly a "no strings attached" gift).

K_S

MrsDippy said:

Thank you all for advice, really appreciate it. So further detail may help. My husband and I are selling our current house and my MIL selling her house. Equity from both houses are the total deposit for new big house. We are setting up a deed of trust to pay back MIL deposit, and then our deposits should we sell and divvy up and remaining equity. The mortgage is arranged for my husband and I so we are the legal owners. As MIL is not on mortgage MIL is not legal owner. So I *think* this is the issue. Solicitor is saying HMRC need to know and that we will have to register as a Trust, unless MIL is on mortgage. We don’t want MIL on mortgage but don’t understand the implications if she is not - we will get taxed over this at some point? What is the purpose of registering the Trust with HMRC? Is this seen as liable for inheritance tax? Ok off to find cake for breakfast… thank you for any further advice this forum is super.

@mrsdippy Thanks for the update. The issue here might be that the amount being gifted by your MIL won't meet the standard requirements for a gifted deposit, namely - "The gift is ‘not repayable' and the person(s) gifting the deposit 'will hold no interest in the property following completion of the mortgage'" 

One can hold an interest in the property even without being a legal owner, as your MIL will be through the deed of trust.

Another potential option is to have all three on the mortgage and use a lender who will discount the age of borrowers who don't have any income.

Just to be clear, I'm not saying that you absolutely cannot get a mortgage with the arrangements as described, but in this case it looks like the lender's requirements don't match the circumstances.

kingstreet

It would be helpful from a mortgage POV to know which lender this relates to.

I'd say at one end of the spectrum, NatWest won't bat an eyelid while at the other, Santander wouldn't lend.

getmore4less

Shame all the joint proprietor sole borrower options got droped by lenders.