Buying share of parents house

arbshark

My parents who are in their late 70's have a property worth around £400k with no mortgage.  Until recently they have been living off a combination of savings and pensions but their savings have now run out so face the dilemma of either cutting back outgoings drastically or unlocking some of the equity in their home.

I am not a fan of equity release and so one option we are exploring is for my sibling and I to transfer £10-£20k each to our parents and in exchange get a solicitor to arrange a transfer of equity so we both own a share of the property 

Costs appear top be £250-£500 + VAT

HM Land Registry - £20 each

Other fees (ID checks, etc)

I believe we would be below the current stamp duty threshold

The alternative appears to be some sort of loan agreement with zero interest but the value of the debt linked to the property value over time, which would avoid the transfer of equity - Would this be a cheaper option in terms of legal fees, etc

Looking for any views of these two options

Things to consider include any complication the arrangement might have on potential future care costs, Capital Gains Tax, who contributes to any large expenditure that has an effect on the property value such as extensions, new kitchen refit, etc  

user1977

A loan needn't involve any legal fees (though you might wish to get a charge registered over their property). Taking a share of ownership seems unnecessarily cumbersome if the aim is really just to let your parents have some cash.

jonnydeppiwish!

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

arbshark

jonnydeppiwish! said:

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

I believe SDLT and the additional 3% doesn't apply if below £40k, but certainly something to get confirmed

SDLT_Geek

arbshark said:

jonnydeppiwish! said:

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

I believe SDLT and the additional 3% doesn't apply if below £40k, but certainly something to get confirmed

I am assuming the property is in England, so the relevant stamp duty is stamp duty land tax.

If OP and a sibling pay less than £40K for shares in the property, then there should be no SDLT for them to pay.  But if they pay £40K or more and have another property, then the 3% rate would apply. 

If either OP or sibling have not ever owned a property before, then buying a share would cause them to lose their status as first time buyer on a future purchase.  It could also cause them a problem with the 3% surcharge if when they buy, the share in the parent's house is then worth £40,000 or more.

Keep_pedalling

arbshark said:

jonnydeppiwish! said:

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

I believe SDLT and the additional 3% doesn't apply if below £40k, but certainly something to get confirmed

Is the plan to by up to 10% of the property with a deed of trust drawn up to show the actual % owned by each, or will you be getting a larger share? If the latter then SDLT will be based on the market value of any share you take rather than the amount paid.

In your situation I would be concerned about what happens if they burn through this money in a few years taking them back to where they now find themselves. 

SDLT_Geek

Keep_pedalling said:

arbshark said:

jonnydeppiwish! said:

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

I believe SDLT and the additional 3% doesn't apply if below £40k, but certainly something to get confirmed

Is the plan to by up to 10% of the property with a deed of trust drawn up to show the actual % owned by each, or will you be getting a larger share? If the latter then SDLT will be based on the market value of any share you take rather than the amount paid.

In your situation I would be concerned about what happens if they burn through this money in a few years taking them back to where they now find themselves. 

For a mortgage free property, I would expect the SDLT to be based on the total amount paid, not the market value.

arbshark

Keep_pedalling said:

Is the plan to by up to 10% of the property with a deed of trust drawn up to show the actual % owned by each, or will you be getting a larger share? If the latter then SDLT will be based on the market value of any share you take rather than the amount paid.

In your situation I would be concerned about what happens if they burn through this money in a few years taking them back to where they now find themselves. 

It would be the actual % at current market value with no element of a gift
Without adjusting current spending I would envisage burning through at around £5k per year but the boiler is 10 years old, the kitchen is getting old and their car may need replacing in the next year or two.
I also know my mum would love to do one more trip to the USA which they always loved doing in the past but not been able to afford in recent years.
I do have more savings I could lend if in 5-8 years that money was gone.
I would like them to have enough money to be able to enjoy life while still fit and able rather than have to scrimp and save and just sit and at home watching TV all day while they have £400k in equity

arbshark

SDLT_Geek said:

I am assuming the property is in England, so the relevant stamp duty is stamp duty land tax.

If OP and a sibling pay less than £40K for shares in the property, then there should be no SDLT for them to pay.  But if they pay £40K or more and have another property, then the 3% rate would apply. 

If either OP or sibling have not ever owned a property before, then buying a share would cause them to lose their status as first time buyer on a future purchase.  It could also cause them a problem with the 3% surcharge if when they buy, the share in the parent's house is then worth £40,000 or more.

Thanks for the detailed reply with some excellent points

I can confirm that the property is in England
The intention is for the amount to be £40k or less at this stage, with a possible further amount if needed in 5-8 years time
My sibling owns another house, and I own two Buy-to-let properties 

Keep_pedalling

SDLT_Geek said:

Keep_pedalling said:

arbshark said:

jonnydeppiwish! said:

Don’t forget the possibility of SDLT and potentially with the addition of 3%. @SDLT_Geek should be able to help 

You might be better loaning them the money and secure it on the property.

I believe SDLT and the additional 3% doesn't apply if below £40k, but certainly something to get confirmed

Is the plan to by up to 10% of the property with a deed of trust drawn up to show the actual % owned by each, or will you be getting a larger share? If the latter then SDLT will be based on the market value of any share you take rather than the amount paid.

In your situation I would be concerned about what happens if they burn through this money in a few years taking them back to where they now find themselves. 

For a mortgage free property, I would expect the SDLT to be based on the total amount paid, not the market value.

You are right, I did not have my brain in gear when I posted that up, must be the stress of moving house turning my brain to mush. 😬

arbshark

I'm also wondering about capital tax gain issues

If I bought a 5% share for £20k, then in 10 years the property is sold for twice it's current value I have made a £20k profit - would this be a taxable gain

If so, the loan agreement with a registered interest in the property might be the simpler and cheaper option