Equity Release to Fund a Child's House Purchase & Tax Implications

Leodogger

MWT said:

Leodogger said:

He declared bankrupty 18 months ago !   He has had a permanent job for the last 18 months.    We can't afford to pay his tax bill AND give him a 40% or more deposit towards a house.

It feels like there is more to this than you may want to get into on a public forum, but if he declared bankruptcy 18 months ago and has been in a permanent job since then, how did he fail to get his self-employed tax debt included within the bankruptcy?

Sorry I don't know all the details, but I have now told him to consult a mortgage advisor first to set out his position with regards to getting a mortgage.   Hopefully the mortgage advisor will tell him after receiving all his financial information, everything he needs to know with regard to his eligibility to get a mortgage or not as the case may be.

Sea_Shell

Leodogger said:

Exodi said:

Leodogger said:

MWT said:

Leodogger said:

I think he would need to agree a payment plan with HMRC first before he went ahead with the property purchase.

The equity release part of this is a red herring, nothing to worry about regarding the source of your gifted deposit.

Your son needs to sort out his tax before you gift anything and before he starts trying to get a mortgage...

HMRC are not usually unreasonable as long as you do engage with them to sort things out, ignoring them and their communications is what will usually end badly...

Yes, I agree and I did tell him to sort out a payment plan first although I have been told by a debt helpline that if he made himself bankrupt he may be refused a mortgage altogether !

Woh hold up, where did bankruptcy come into it? At first I thought you perhaps meant 'what if HMRC made him bankrupt' but upon re-reading it sounds as if the master plan between you now is to apply for bankruptcy, then apply for a mortgage?

Did you really need to call a debt helpline to realise this wasn't the best plan?

Why the desperation to buy a house? If you're desperate to help, why not just pay his tax bill?

He declared bankrupty 18 months ago !   He has had a permanent job for the last 18 months.    We can't afford to pay his tax bill AND give him a 40% or more deposit towards a house.   He is 52 years of age and he may have to put down a much larger deposit because of that and the fact that he was a bankrupt.   I have since found out that you can still get a mortgage but depending on how long ago it was means you would have to provide a larger deposit.   I also have a daughter who wants to purchase a house and we would have to give them the same amount each, another reason we can't afford to pay his tax bill and his deposit.    It was our suggestion for him to buy a house since his rent keeps going up to well over £1000 per month and we said it would be cheaper to buy a house as the payments may well be lower than that!

It sounds like you can't really afford to be "Bank of Mum and Dad" to both your adult children, at least not fairly anyway, without risking your own financial future.

You don't say how big the tax bill is, but it sounds substantial!?!

If you really want to "pawn" your own property to help them, then you need to decide on how much you are (can) prepared to give....give them that each and then... bank's closed!!!

Leodogger

Sea_Shell said:

Leodogger said:

Exodi said:

Leodogger said:

MWT said:

Leodogger said:

I think he would need to agree a payment plan with HMRC first before he went ahead with the property purchase.

The equity release part of this is a red herring, nothing to worry about regarding the source of your gifted deposit.

Your son needs to sort out his tax before you gift anything and before he starts trying to get a mortgage...

HMRC are not usually unreasonable as long as you do engage with them to sort things out, ignoring them and their communications is what will usually end badly...

Yes, I agree and I did tell him to sort out a payment plan first although I have been told by a debt helpline that if he made himself bankrupt he may be refused a mortgage altogether !

Woh hold up, where did bankruptcy come into it? At first I thought you perhaps meant 'what if HMRC made him bankrupt' but upon re-reading it sounds as if the master plan between you now is to apply for bankruptcy, then apply for a mortgage?

Did you really need to call a debt helpline to realise this wasn't the best plan?

Why the desperation to buy a house? If you're desperate to help, why not just pay his tax bill?

He declared bankrupty 18 months ago !   He has had a permanent job for the last 18 months.    We can't afford to pay his tax bill AND give him a 40% or more deposit towards a house.   He is 52 years of age and he may have to put down a much larger deposit because of that and the fact that he was a bankrupt.   I have since found out that you can still get a mortgage but depending on how long ago it was means you would have to provide a larger deposit.   I also have a daughter who wants to purchase a house and we would have to give them the same amount each, another reason we can't afford to pay his tax bill and his deposit.    It was our suggestion for him to buy a house since his rent keeps going up to well over £1000 per month and we said it would be cheaper to buy a house as the payments may well be lower than that!

It sounds like you can't really afford to be "Bank of Mum and Dad" to both your adult children, at least not fairly anyway, without risking your own financial future.

You don't say how big the tax bill is, but it sounds substantial!?!

If you really want to "pawn" your own property to help them, then you need to decide on how much you are (can) prepared to give....give them that each and then... bank's closed!!!

Well I have read that you can take up to 50% equity release if you are in your 70's though I wouldn't really like to go that high because of the  interest it would incur.   Plus the interest rate is increasing pretty quickly now.    He owes £20k so that cuts down what we could give him  but it all would depend on how much deposit he would need and again that depends on his age and how much he would need to agree to pay back on the tax he owes as to what mortgage he would be able to obtain.   

Sea_Shell

How much is your house worth?

What would a max ER of 50% give you?

Would they be able to afford (to buy) what they want with half of this each... including what they owe.

If the figures are too far apart, it may be a complete non starter.

What is your monthly pension income like.  Are you comfortable?  Do you have other emergency savings of your own?

Sea_Shell

Another thing ...

How does your daughter feel about her brother's financial predicament?  Does she know?

Don't risk alienating her over helping bail out your son ☹️

Keep it fair, and if that means they both get less, or nothing!,  then so be it.

Leodogger

Sea_Shell said:

Another thing ...

How does your daughter feel about her brother's financial predicament?  Does she know?

Don't risk alienating her over helping bail out your son ☹️

Keep it fair, and if that means they both get less, or nothing!,  then so be it.

I agree, I would have to keep it fair, half of our property value would be much more than they need (his sister knows his financial position and I did say I wouldn't use the ER to pay his tax bill, he would have to take a payment plan himself to pay it) but we are obviously trying to keep the cost down so I think the best would be to get a ER quotation on what we think we want to take and what is affordable to lose on the interest that would need repaying at the end, although of course we wouldn't be around to pay it of course !  There is no obligation of course from a quote so that probably is the best first step to take, and if that isn't enough for them then maybe we won't bother and they will have to wait until we kick the bucket LOL !

sammyjammy

If his tax debt was included in his bankruptcy then he owes no money other than what he pays out in an IPA for another 18 months.  Its probably way too early to get any kind of mortgage.

Leodogger

sammyjammy said:

If his tax debt was included in his bankruptcy then he owes no money other than what he pays out in an IPA for another 18 months.  Its probably way too early to get any kind of mortgage.

Well he said he owes it because he keeps getting letters from HMRC.  Anyway he is going to have to agree a payment plan before he can even contemplate looking for a house or mortgage.   He was very bitter when he wasn't entitled to either furlough or a bounce back loan because of his accountant not sorting out his tax and so has delayed dealing with it.

Brie

Info not in answer to your question but perhaps necessary in the circumstances.....

If you gift your children money then you will need to sign something to confirm to the banks involved that it is an outright gift and that you do not have any claim on any portion of the property.  I don't think you will find that an inconvenience.

If you gift your children money and then need care the gifts may be taken into account if the local authority needs to help you with the cost of the care either in your own home or elsewhere.  Essentially the LA can put a lien on their homes, may suggest/force them to sell them in order to recoup the costs of your care.  

Hopefully this second point will never be an issue for you and presumably you consider yourself fit and healthy with no need of such assistance.  But things do happen suddenly at times so it's best to be forewarned.

Leodogger

Brie said:

Info not in answer to your question but perhaps necessary in the circumstances.....

If you gift your children money then you will need to sign something to confirm to the banks involved that it is an outright gift and that you do not have any claim on any portion of the property.  I don't think you will find that an inconvenience.

If you gift your children money and then need care the gifts may be taken into account if the local authority needs to help you with the cost of the care either in your own home or elsewhere.  Essentially the LA can put a lien on their homes, may suggest/force them to sell them in order to recoup the costs of your care.  

Hopefully this second point will never be an issue for you and presumably you consider yourself fit and healthy with no need of such assistance.  But things do happen suddenly at times so it's best to be forewarned.

Actually we are way ahead of you there, we took out Trust wills for them both 5 yrs ago so only have another 2 yrs to go without needing care and then they will not be able to touch our property at least whilst one of us survives, so presumably this will override the gifting of our money and them being able to claw back the money, unless I hear anything to the contrary.