Parents moving into second home

Jussa1970

Hi,
was wondering if anybody could advise?
my parents can’t get a mortgage because of their age even though they can afford one.
my wife and I plan to purchase a second home and they will move in and pay the mortgage.
can they just gift us the money each month to do this?
it’s a small mortgage £150K so around £800 a month.
they have no assets so surely inheritance tax wouldn’t come into the equation?
TIA

lisyloo

What happens if they need long term care? (they will effectively be buying you a house and the local authority might have something to say about that).
What happens if you fall out?
What happens if you divorce?

Jussa1970

I’m more concerned on what the tax implications are.
if their estate isn’t worth £350K and they keep on gifting money to pay the mortgage surely inheritance tax wouldn’t apply?

lisyloo

strictly speaking if they die within 7 years then inheritance tax would fall within their nil rate band so 0%, so it applies but likely at 0%

From April 2025 you'll pay £11K stamp duty 
You'll need to pay income tax on any rental income profit (You could arrange for there to be no profit).
You'll have to pay capital gains tax when you sell.

You will likely have to take a BTL mortgage for a second property.
Do you have a 25% deposit and £11K for stamp duty?

p00hsticks

lisyloo said:

What happens if they need long term care? (they will effectively be buying you a house and the local authority might have something to say about that).

Surely that depends on whether £800 is a reasonable market rent for the areas - after all they'd be paying any other landlord the same for somewhere to stay ? 

Jussa1970

Maybe this forum is the wrong one to ask?
I was just asking about inheritance tax.
if my parents gifted me money every month to pay for a mortgage in the second home I bought (because they’re living in it) surely I wouldn’t have to pay inheritance tax on that even if they died in 7 years because their estate doesn’t have any money in it?

p00hsticks

Bookworm105 said:

Jussa1970 said:

Maybe this forum is the wrong one to ask?
I was just asking about inheritance tax.
if my parents gifted me money every month to pay for a mortgage in the second home I bought (because they’re living in it) surely I wouldn’t have to pay inheritance tax on that even if they died in 7 years because their estate doesn’t have any money in it?

in IHT terms it is a gift with reservation of benefit as in return for their money they benefit from the use a house they do not themselves own 
As a GWR. the gift is deemed to still form part of their estate, ie the 7 year rule does not apply to a GWR

However, as you have repeated several times, if their total estate (including successive gifts) is below the IHT threshold then obviously there is no IHT to pay. So yes, they can buy your house for you and you can treat it as an early inheritance. It is certainly not liable for income tax for you as it is a gift, not your income.

I'm not an expert, but I'm not convinced that as described it is a GWR. This would definitely be the case if the parents were signing over their owned main residence to children and remain living in it but as far as I can see this isn't what is intended here.

Unless I'm misreading it, the OP is intending to buy a property in their own name, using their own money and then effectively rent it to the parents, with the rent covering the mortgage. (As an aside,  The OP may struggle to get such a mortgage as my understanding is that a standard residential one won't be appropriate as the OP isn't living there, and a normal BTL one wouldn't allow renting to family members). 

Describing the payment as 'a gift to cover the mortgage' strikes me as rather misleading - it;s actually rent for renting the property. No-one would consider that paying a landlord rent for living in a property was a gift to the landlord for the purposes of IHT, and providing the rent is a reasonable one for the market I'm not convinced that the fact that the landlord is a relative would make a difference. 

But as I opened with, I'm not an expert so may be completely wrong - happy to be corrected if so.

lisyloo

Jussa1970 said:

Maybe this forum is the wrong one to ask?
I was just asking about inheritance tax.
if my parents gifted me money every month to pay for a mortgage in the second home I bought (because they’re living in it) surely I wouldn’t have to pay inheritance tax on that even if they died in 7 years because their estate doesn’t have any money in it?

Sorry, you said tax.
Hence i answered IHT, Stamp duty, cgt and income tax.

I don’t think there will be any IHT as they aren’t giving you the money, it’s to live on the house I.e. rent.

silvercar

Research ‘beneficial ownership’. You are putting it in your name in order for them to buy and the only reason you are doing this is because they can’t get a mortgage themselves. You could also look at ‘joint borrower, sole proprietor’ mortgages, where you are all on the mortgage but only they are on the deeds, though their age may be a barrier to this.

Jussa1970

So just to clarify.
my wife and I are purchasing the house in our name. (Because the parents cannot get a mortgage)
the parents are gifting the deposit and all expenses to purchase the house, but as mentioned it’s in my wife and my name.
they will be moving into the house and paying council tax, energy bills etc.
We have to pay the mortgage obviously as it’s in our name.
so to cover the mortgage costs the parents will be gifting money to assist with this.
it cannot be any clearer really in what I’m trying to explain.
I’m only trying to clarify whether HMRC can come looking for me for not declaring a rental that is in fact an ongoing gift by my parents.

Keep_pedalling

They won’t be gifting you money, they will be paying yourent, so you will be landlords and what they pay you in rent will be taxable. 

You will need a buy to let mortgage but you may find lenders are reluctant to lend to people renting to family.