Buying house from spouses family

squarehead94

Hi all.
In a position to purchase a property from spouses grandparent. Has had 3 valuations at approx. 140k. He's willing to sell to me for 125k with no agents fees or anything. Is there any issues I might run into with this? 
Would this be liable for IHT? Wasn't sure as this is the sort of offer I would have made on any house really. But also unsure as it's not a direct relation to me. Wife can't be listed on the mortgage due to credit history so doing a sole application for it.
Thanks

The_Unready

"Would this be liable for IHT?"

What IHT liability are you thinking of? Liability for who - you, grandparent, wife, me......? Presumably nobody has died yet?

More detail is required before anybody can make an accurate assessment............

km1500

If you pay £125k then presumable the seller will have a bank balance of £125k more. If they die, this £125k will form part of their estate for IHT purposes, less if they have spent some. It is of no concern to you.

The £15k reduction in this property climate is not enough to cause any problems, other than I suppose if the seller has to pay CGT on the sale then HMRC may say the profit should be based on £140k sale price but as I say the reduction is probably not enough to be of concern especially as they are saving on selling fees.

dimbo61

Have you got a deposit ?
Are you and your spouse going to live in the property  as your family home ?
What is the condition of the property ?
You talk about grandparent ! So maybe the property is old  and  needs work ?

squarehead94

dimbo61 said:

Have you got a deposit ?
Are you and your spouse going to live in the property  as your family home ?
What is the condition of the property ?
You talk about grandparent ! So maybe the property is old  and  needs work ?

Yes, equity from current property plus some savings - around 20% deposit. Yes, would be the family home. Condition is good, just very dated. eg a lot of decorating needing done, but no structural issues (to my knowledge)

user1977

I'm not sure the difference between £125k and an (estate agent's?) possibly ambitious valuation of £140k is enough for mortgage lenders to be concerned about - though you might be better to ask on the Mortgages board where the brokers hang out. And the only IHT implication would at most be the £15k "discount" being a lifetime gift which potentially gets (partially) added back into the estate if the gifter dies within seven years.

squarehead94

The_Unready said:

"Would this be liable for IHT?"

What IHT liability are you thinking of? Liability for who - you, grandparent, wife, me......? Presumably nobody has died yet?

More detail is required before anybody can make an accurate assessment............

km1500 said:

If you pay £125k then presumable the seller will have a bank balance of £125k more. If they die, this £125k will form part of their estate for IHT purposes, less if they have spent some. It is of no concern to you.

The £15k reduction in this property climate is not enough to cause any problems, other than I suppose if the seller has to pay CGT on the sale then HMRC may say the profit should be based on £140k sale price but as I say the reduction is probably not enough to be of concern especially as they are saving on selling fees.

I'm not really sure to be honest. I'd just read somewhere that buying from family can be scrutinized more and something about how the difference between MV and the price id be paying would be classed as a gifted deposit - which isn't what I'm looking to do, its worth X but hes offered it to me for Y due to it needing some renovations, he has no interest in listing the property with an agent so would be saving on fees, time and money. But I'm also not sure if it would be an issue as its not a direct relative of myself (grandparent in law)

Nobody has died yet no.

He plans to rent somewhere and gift the majority of the sale money to his 2 children, retaining some for himself (has a good pension etc. anyway so doesn't need a lot)

Keep_pedalling

The only immediate tax issue might be CGT if this is not the GP main residence and that would be payable by them and would be based on full market value if sold to a connected person at a discount.

Any discount would be treated as a gift for IHT purposes but again it does not effect you, as any IHT due is payable by estate.

propertyrental

km1500 said:

If you pay £125k then presumable the seller will have a bank balance of £125k more. If they die, this £125k will form part of their estate for IHT purposes, less if they have spent some. It is of no concern to you.

But if they do not sell the property, their Estate on death will include the property, valued at £140K.

The difference of price against value (140 - 125= £15K) is essentially a gift. It might be assessed as forming part of the Estate if grandad dies within 7 years, but if so this would simply put grandad's Estate (and Inheritance Tax liability) back into the position as if he hadn't sold before dying.

eddddy

squarehead94 said:

I'd just read somewhere that buying from family can be scrutinized more and something about how the difference between MV and the price id be paying would be classed as a gifted deposit - which isn't what I'm looking to do

squarehead94 said:

Yes, equity from current property plus some savings - around 20% deposit. 

So you'd be buying for £125k - and you'd be paying a 20% (or £25k) deposit. So I assume you'd get a 80% ltv mortgage.

That £25k deposit is already your money. Nobody is giving it to you as a gift. So it's not a 'gifted deposit'.


I guess what you've read about is something like this:

• Somebody is buying a property valued at £140k for £125k.

• They have no money of their own to put towards the deposit, so they want the £15k discount to be treated as their deposit

.... but that doesn't apply to you (does it?).

squarehead94

So you'd be buying for £125k - and you'd be paying a 20% (or £25k) deposit. So I assume you'd get a 80% ltv mortgage.

That £25k deposit is already your money. Nobody is giving it to you as a gift. So it's not a 'gifted deposit'.


I guess what you've read about is something like this:

• Somebody is buying a property valued at £140k for £125k.

• They have no money of their own to put towards the deposit, so they want the £15k discount to be treated as their deposit

.... but that doesn't apply to you (does it?).

Correct, I'd have my own full deposit and looking at 80% LTV (around 15% from equity in existing property to be sold and additional 5% in savings) 

I guess I'm just worried that there would be financial implications on his side, particularly if he does pass away within any timescale (touch wood hopefully not, he is a fit and active 73 year old!)

All I'm worried about is would there be any financial implications or potential scrutinization in me purchasing it for 125k Vs a stranger offering him that? Like I say, it's not a case of I have no deposit myself or I'm getting it hugely under MV, in actual fact it's close to what these quick home sale companies would offer.