Confusing family home ownership situation

peachsun

This is a complicated situation that has only recently been floated within my family so I really do not have any insight on who I need to speak to about this. Fully aware that I will need professional advice but thought here would be a good start! Bear with me...

To summarise - my in-laws want to buy another house, in addition to their existing family home. My husband's 2 siblings still live in family home with the parents. Siblings both own a property each (purchased by parents, mortgages in sibling's names). Family home in parents name, mortgage free. My husband and I own a home with mortgage and live in it. 

Fort context they are a very close family, very financially intertangled, parents have always been very generous to all kids. Their intention is all kids have homes as an investment or to live in. Expectation is sibling 1 will always live with them in whichever becomes their main property.

In order to save money on the stamp duty of the new home, parents want to majorly shuffle around current portfolio of home ownership. Suggestion is husband (and possibly me) and sibling 1 will have new home in their name (need both their high salaries to get the mortgage). Sibling 1 already in the process of selling the investment property they own.  

Sibling 2 to sell their investment property too and then they get put on mine & husband's current home mortgage/ownership (either with me, or just them alone). We will still live in the property and pay mortgage/bills as usual for the foreseeable.

That's about as clearly as I can explain it but seems like a real mess to me. The upside for us is that down the line apparently the parents will give us either their family home, or this new home (both worth a lot more than our current home) and sibling 2 will get our home. Apparently this shuffle is based on advice from a mortgage adviser but I will be seeking independent advice separately as I think this arrangement will be based on trust, and you can never foresee what the future will hold! I am wondering what type of professional would be best to get advice on this setup? And any huge watch-outs?

If you've made it this far, thank you! Any advice appreciated

chanz4

did you want to get rid of your current house?

elsien

The usual caveats – illness, bankruptcy, divorce,. Anyone who is a part owner of a house that they are not living in would have that property counted as an asset that they may need to realise in certain circumstances. 

Your home. 
  Is that what you want?
I wouldn’t touch  it with a barge pole. 

HampshireH

I'm struggling to see the logic behind this. Ultimately you might benefit from a larger higher value house. But in the meantime you could lose everything.

But I also find that level of inter financial dependency a little strange.

peachsun

Without giving the whole background, this shared finances and house thing is quite normal in my husband's culture (which I'm not part of so is weird to me). He obviously trusts his parents implicitly and they have only been good to us but I'm more of a realist, and see the pitfalls of having so many people involved, especially siblings who might have a change in circumstance down the line. 

I'm happy with our house right now and don't want to sell. The only benefit for us is the promise of a (substantially) higher value property, but I don't see how that can actually be promised, surely that can only be based on trust.

Bookworm105

Your post is rather confusing. Who pays the mortgage on each is irrelevant, the only info needed is 
a) who will own each property
b) who will live in each property

current
House A - owned by parents. Lived in by parents as their main home. Also lived in by siblings 1 & 2 as their main home
House B - investment property owned by sibling 1 - currently being sold (not main home so Capital gains tax will be payable)
House C - investment property owned by sibling 2 - currently being sold (CGT will be payable)
House D - owned by you and husband. Lived in as your main home. 

Future
Please set out as above who will own what and who will live in what 
it appears parents will end up owning nothing?

House A - to be retained but with husband and sibling 1 as owners. To be lived in by whom?
House D - to be retained but with different ownership mix.  Given apparent sibling 2 will be co-owner but not living there, you will share any capital gain with them and they will face a CGT bill on a property they do not live in.
House E - new purchase to be lived in by parents and sibling 1 - to be owned by husband and sibling 1?
(presumably sibling 1 is disabled and needs support)
Sibling 2 will live where?

The implications of the mix are threefold::
a) exposure to SDLT due to simultaneously owning a property at the same time as becoming owner of a further property
and
b) future CGT liability on a property people own but do not live in it as their own main home. Transfers between siblings and/or parents will trigger CGT  
and
c) which property now has co-owners that don't live in it.  That asset is thus exposed to potential forced sale if the co-owner experiences financial difficulties and has to liquidate their wealth 

kimwp

Why not sibling 1 own new house where they will live with the parents, you own family house, sibling 2 own your house? (Or vice versa for ownership of sibling 1 and yourself). Split the cash already in the houses as necessary to make the mortgages possible. Honestly, it feels complicated and as someone said above, there will be capital gains tax and also remortgage fees, so is it going to save that much? But it feels cleaner to transition the house ownership to the three siblings straight away rather than have joint ownerships. Gets the ball rolling on the 7 year inheritance tax count as well.

theoretica

peachsun said:

This is a complicated situation that has only recently been floated within my family so I really do not have any insight on who I need to speak to about this. Fully aware that I will need professional advice but thought here would be a good start! Bear with me...

To summarise - my in-laws want to buy another house, in addition to their existing family home. My husband's 2 siblings still live in family home with the parents. Siblings both own a property each (purchased by parents, mortgages in sibling's names). Family home in parents name, mortgage free. My husband and I own a home with mortgage and live in it.

Who will live in the new house?  In the old one?

Fort context they are a very close family, very financially intertangled, parents have always been very generous to all kids. Their intention is all kids have homes as an investment or to live in. Expectation is sibling 1 will always live with them in whichever becomes their main property.

In order to save money on the stamp duty of the new home, parents want to majorly shuffle around current portfolio of home ownership. Suggestion is husband (and possibly me) and sibling 1 will have new home in their name (need both their high salaries to get the mortgage). Sibling 1 already in the process of selling the investment property they own.  

Your husband already owns a property - so higher stamp duty will apply to the purchase of the new home

 

Sibling 2 to sell their investment property too and then they get put on mine & husband's current home mortgage/ownership (either with me, or just them alone). We will still live in the property and pay mortgage/bills as usual for the foreseeable.

So this property - owned by sibling 2 but not lived in it - they will need to pay CGT when it is sold

That's about as clearly as I can explain it but seems like a real mess to me. The upside for us is that down the line apparently the parents will give us either their family home, or this new home (both worth a lot more than our current home) and sibling 2 will get our home. Apparently this shuffle is based on advice from a mortgage adviser but I will be seeking independent advice separately as I think this arrangement will be based on trust, and you can never foresee what the future will hold! I am wondering what type of professional would be best to get advice on this setup? And any huge watch-outs?

If you've made it this far, thank you! Any advice appreciated

Stamp duty can't be considered in isolation - CGT also needs to be thought about, which rears its head when people don't live in the properties they own...

user1977

Bookworm105 said:

Who pays the mortgage on each is irrelevant

It is though an additional complication, as the OP seems to be suggesting their husband will be on a mortgage of the property being acquired, while the OP (and husband?) may also be on a mortgage of their existing home (or in any event that will be owned partly or wholly by sibling 2, while OP & husband occupy it) - not sure how much of that is going to be acceptable to lenders?

Would help if the OP could clarify the other points though!

silvercar

elsien said:

The usual caveats – illness, bankruptcy, divorce,. Anyone who is a part owner of a house that they are not living in would have that property counted as an asset that they may need to realise in certain circumstances. 

Your home. 
  Is that what you want?
I wouldn’t touch  it with a barge pole. 

In these sort of intertangled families, illness will result in the family pulling together and supporting each other, so that won't have an impact. Bankruptcy isn't considered, because again the family would pull together. Divorce is probably the greatest risk of the 3, but the family probably don't have many divorcees in the family and would find a way around it - probably paying off the non family member with far more than that person put in to the pot.

In any case, they aren't going to have their whole set up disrupted by a future "Unlikely/ maybe".

There may be some fluidity in who lived where and when for properties that weren't rented out. Even so, the potential tax bill may be worth this family support. I would think they also have a tax advisor.

user1977 said:

Bookworm105 said:

Who pays the mortgage on each is irrelevant

It is though an additional complication, as the OP seems to be suggesting their husband will be on a mortgage of the property being acquired, while the OP (and husband?) may also be on a mortgage of their existing home (or in any event that will be owned partly or wholly by sibling 2, while OP & husband occupy it) - not sure how much of that is going to be acceptable to lenders?

Would help if the OP could clarify the other points though!

You can get family mortgages, '1 owner/ 2 borrower' mortgages, portfolio mortgages. 

I'd be just considering the gains and risks to yourself and your OH and don't worry if other family members get entangled in things.

_Penny_Dreadful

peachsun said:

This is a complicated situation that has only recently been floated within my family so I really do not have any insight on who I need to speak to about this. Fully aware that I will need professional advice but thought here would be a good start! Bear with me...

To summarise - my in-laws want to buy another house, in addition to their existing family home. My husband's 2 siblings still live in family home with the parents. Siblings both own a property each (purchased by parents, mortgages in sibling's names). Family home in parents name, mortgage free. My husband and I own a home with mortgage and live in it. 

Fort context they are a very close family, very financially intertangled, parents have always been very generous to all kids. Their intention is all kids have homes as an investment or to live in. Expectation is sibling 1 will always live with them in whichever becomes their main property.

In order to save money on the stamp duty of the new home, parents want to majorly shuffle around current portfolio of home ownership. Suggestion is husband (and possibly me) and sibling 1 will have new home in their name (need both their high salaries to get the mortgage). Sibling 1 already in the process of selling the investment property they own.  

Sibling 2 to sell their investment property too and then they get put on mine & husband's current home mortgage/ownership (either with me, or just them alone). We will still live in the property and pay mortgage/bills as usual for the foreseeable.

That's about as clearly as I can explain it but seems like a real mess to me. The upside for us is that down the line apparently the parents will give us either their family home, or this new home (both worth a lot more than our current home) and sibling 2 will get our home. Apparently this shuffle is based on advice from a mortgage adviser but I will be seeking independent advice separately as I think this arrangement will be based on trust, and you can never foresee what the future will hold! I am wondering what type of professional would be best to get advice on this setup? And any huge watch-outs?

If you've made it this far, thank you! Any advice appreciated

What exactly is the mortgage advisor giving advice on? How the new property could be purchased or how to save on tax? If it’s the latter take it with a pinch of salt. In order to save the higher rate of SDLT there are CGT liabilities being triggered and created all over the place. Furthermore, SDLT is based on beneficial ownership, not legal ownership. I’d be interested to see the numbers to determine if any tax was actually going to be saved with this convoluted plan. 

I think I can guess the culture and whilst this might seem like everything is wonderful and based on trust sometimes the reality is that it’s about control. I wouldn’t hand over the roof over my head because someone is dangling a carrot that may never come. Also, what I have seen in this inter-family home ownership arrangement previously is that no one has a mortgage because property is bought with family money not mortgages. You say the parents bought the children homes but it sounds more like the parents gave deposits rather than enough to buy a property outright.