Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    discokidda
    Advice on buying Parents house under value
    • #1
    • 3rd May 10, 6:16 PM
    Advice on buying Parents house under value 3rd May 10 at 6:16 PM
    Hi, My Wife and I want to sell our 2 bed house, in which we have around 55k equity, in order to buy my parents 3 bedroom house for us to live in, which is valued at around 130k. The house is too big for my parents now and they want to move to rented sheltered accommodation. They owe around 36k on their mortgage and they have proposed to sell us their house under valued for around 75k. They will then be able to settle their mortgage and have a some pocket money left for holidays etc and we will have a 3 bed house for not a lot. My question is am I legally allowed to buy my mums house at this price? I have been told that it is illegal to buy/sell a house under its market value and it will raise and investigation by the HMRC. Is this true? I thought that the rule only applied if the house is valued at over the inheritance tax / stamp duty threshold, but everyone is telling me different things.. Please Help!
Page 1
  • Emmzi
    • #2
    • 3rd May 10, 6:49 PM
    • #2
    • 3rd May 10, 6:49 PM
    who is funding their stay in sheltered housing?
    Debt free 4th April 2007.
    New house. Bigger mortgage. MFWB after I have my buffer cash in place.
    • wildbri
    • By wildbri 3rd May 10, 7:11 PM
    • 217 Posts
    • 144 Thanks
    wildbri
    • #3
    • 3rd May 10, 7:11 PM
    • #3
    • 3rd May 10, 7:11 PM
    you can sell the house for whatever you want, Pair of semis across the road from me. One for sale for 190,000 the one next door has just been sold within the family for
    130,000. Of course if they are selling below market value to avoid supporting themselves that is a different matter. Regards bri
  • bella1985
    • #4
    • 3rd May 10, 9:11 PM
    • #4
    • 3rd May 10, 9:11 PM
    Assuming they are just being generous and can fund themselves in sheltered housing:

    May have some inheritence tax implications as it'll be 'a transfer of value' from your parents estate. But its below the nil rate band (325k this year I think) so there won't be any IHT to pay.

    If selling to avoid paying costs of sheltered housing thats a different matter
  • discokidda
    • #5
    • 5th May 10, 7:47 PM
    • #5
    • 5th May 10, 7:47 PM
    Hi no they are moving into rented sheltered accomodation and they will be paying their own rent using their own money - without any help from the state (other than their own state pensions). They will also be using the proceeds from the sale of the house towards the costs of rent etc.
    • Fire Fox
    • By Fire Fox 5th May 10, 7:52 PM
    • 24,803 Posts
    • 28,827 Thanks
    Fire Fox
    • #6
    • 5th May 10, 7:52 PM
    • #6
    • 5th May 10, 7:52 PM
    You can purchase their house for any price agreed between yourselves, however you will need to pay stamp duty on the market value of the property. IIRC the stamp duty threshold is 125K - who has done the 130K valuations? Have you looked at current land registry sold prices? These will usually be lower (and arguably more accurate) than an estate agents valuation. If you need a valuation for mortgage purposes this might also be supplied to the inland revenue.

    If either of your parents ever need residential care then selling their home undervalue may be seen as 'deprivation of capital' so they may not be entitled to state support. It is not illegal for your parents to make a gift to you in the manner you propose, the law would only come into play if your parents give away their assets in order to claim benefits, or supply fraudulent information on any application forms for benefits.
    Last edited by Fire Fox; 05-05-2010 at 7:56 PM.
    Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️ Trainee Rosie the Riveter.
  • discokidda
    • #7
    • 5th May 10, 8:35 PM
    thanks firefox
    • #7
    • 5th May 10, 8:35 PM
    Thanks, things are getting clearer for us. Do you know if there is a time limit on them not being able to claim any benefits? For example they will have about 30k profit from the house sale which they plan to live off, pay rent and enjoy retirement. In reality this will prob last them around 5-7years. What would happen if they ever needed to claim benefits after this time? could we be liable for their rent / care charges or will they be able to claim benefits after this time? Can we lose our house?

    So many complications!
  • finnigan
    • #8
    • 5th May 10, 8:40 PM
    • #8
    • 5th May 10, 8:40 PM
    FF, we bought our house under value and we paid stamp duty based on the purchase price, not the surveyors valuation.

    Good luck op, no other gems of wisdom here lol.
    • Fire Fox
    • By Fire Fox 5th May 10, 9:05 PM
    • 24,803 Posts
    • 28,827 Thanks
    Fire Fox
    • #9
    • 5th May 10, 9:05 PM
    • #9
    • 5th May 10, 9:05 PM
    Thanks, things are getting clearer for us. Do you know if there is a time limit on them not being able to claim any benefits? For example they will have about 30k profit from the house sale which they plan to live off, pay rent and enjoy retirement. In reality this will prob last them around 5-7years. What would happen if they ever needed to claim benefits after this time? could we be liable for their rent / care charges or will they be able to claim benefits after this time? Can we lose our house?

    So many complications!
    Originally posted by discokidda
    You would not lose your home as you will have bought it legally and you will not be liable for their care home charges. However your parents can be treated by the state as if they still have the money they have gifted to you, i.e. they may not be entitled to state support until they have spent all the notional profit from selling the house at market rate. That means you might have the Hobson's choice of seeing your parents destitute or helping them out financially.

    Five to seven years is not very long, I think the state may take a dim view of your parents leaving themselves insufficient to live on. My understanding is each case is taken on it's merits, but the larger the gap between the gift and needing benefits the better. The lower the valuation of the property the less money your parents will be deemed to have gifted to you IYSWIM.

    I assume your parents are already fairly old if they are going into sheltered housing? Have your parents considered selling their home at market value and then buying a sheltered housing place outright? This will not have to be sold whilst one is still living there, so your parents have a fair chance of being able to leave you something when they pass on.
    Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️ Trainee Rosie the Riveter.
  • discokidda
    Yes, they have thought about selling at full market value, but the whole point of us buying my parents house at a reduced cost is that we (my wife & I) need a 3 bedroom house for our family, but we can't afford to pay the going rate as prices are too high. As I lived in my parents (who are now both in their 70's) home for 25 years and my mum & dad want to see my family settled without money worries they offered to sell us the house for 75k.
    We will mortgage 45k and give them 35k cash from the proceeds of our house sale. They will then use this money to live off - enjoy their retirement etc. They will also be using their state pensions to pay rent etc. My worry, now it has been brought to my attention, is if anything ever happens to them and they needed care. From what I understand now I could be liable for these costs which we couldnt afford.
    • Richard Webster
    • By Richard Webster 6th May 10, 7:39 AM
    • 7,480 Posts
    • 7,203 Thanks
    Richard Webster
    however you will need to pay stamp duty on the market value of the property. IIRC the stamp duty threshold is 125K - who has done the 130K valuations?
    Er....No. You pay (or don't pay SDLT) on the actual price paid.

    It is only when there is some artificial scheme to avoid SDLT on what would otherwise be an arms length transaction that the value comes into play,.e.g. an exchange of properties worth 300K and 175K where there would be 9000 and 1750 SDLT payable the people concerned might decide to make the prices 125K and 250K (same difference) - total SDLT then only 2,500. You can't do that and HMRC would then investigate.
    RICHARD WEBSTER

    As a retired conveyancing solicitor I believe the information given in the post to be useful assuming any properties concerned are in England/Wales but I accept no liability for it.
    • sunshinetours
    • By sunshinetours 6th May 10, 8:30 AM
    • 2,772 Posts
    • 1,817 Thanks
    sunshinetours
    You would not lose your home as you will have bought it legally and you will not be liable for their care home charges. However your parents can be treated by the state as if they still have the money they have gifted to you, i.e. they may not be entitled to state support until they have spent all the notional profit from selling the house at market rate. That means you might have the Hobson's choice of seeing your parents destitute or helping them out financially.

    Five to seven years is not very long, I think the state may take a dim view of your parents leaving themselves insufficient to live on. My understanding is each case is taken on it's merits, but the larger the gap between the gift and needing benefits the better. The lower the valuation of the property the less money your parents will be deemed to have gifted to you IYSWIM.

    I assume your parents are already fairly old if they are going into sheltered housing? Have your parents considered selling their home at market value and then buying a sheltered housing place outright? This will not have to be sold whilst one is still living there, so your parents have a fair chance of being able to leave you something when they pass on.
    Originally posted by Fire Fox
    Seems to me that the transaction at under value is being done for right reasons for both parties. i.e parents want to see their kids sorted and they have a little nest egg to last them say 6 years.

    Can't see this being a transaction that could be attacked too strongly for deprivation of assets. I think a letter lodged with the family solicitor who is dealing with the sale could help setting out why its being sold at whatever price

    My main concern would be that your parents are in their 70 's and only thinking of a nest egg for 6 years or so? personally I think the value is too low. What happens if their rent goes up or one of them dies and they cannot afford the rent on their own
    • Person_one
    • By Person_one 6th May 10, 9:35 AM
    • 26,964 Posts
    • 92,392 Thanks
    Person_one
    I think your parents stand to come out a lot worse off in this. I completely understand that they want to see your family settled and happy but really you shouldn't take advantage of this. They could end up in quite a pickle when the money runs out and you've already said you wouldn't be able to pay for their care so where would that leave them? How bad would you feel living in your parents house that they pretty much gave you and watching them struggle?

    I think you need to find another solution and so do your parents, separately. You should live somewhere you can actually afford, even if it means being a bit cramped or in a different area. Your parents should sell their house at its actual value and use that money to fund their whole retirement, not just 6 or 7 years of it.
    • SandC
    • By SandC 6th May 10, 9:55 AM
    • 3,785 Posts
    • 5,600 Thanks
    SandC
    You've told us what equity you have, but how much mortgage do you have?

    I know your parents have set this price but perhaps you could do the right thing and pay them more. As it stands you are looking at mortgaging 45k and paying them 35k when you've got 55k equity - you are keeping 20k for your own spends? It doesn't sound like much of a nest egg for them and they may genuinely start to struggle soon after that runs out. Or maybe you will then be in a position to help them out?

    Personally I would dissuade them from this idea. Does your income really only allow you to borrow 45K and be comfortable?

    If they had loads of savings then I could understand them helping you to have no financial worries if they didn't either. As it stands they could face a very stark future. I have relatives still going strong in their 90s.
    • Brock_and_Roll
    • By Brock_and_Roll 6th May 10, 10:12 AM
    • 949 Posts
    • 958 Thanks
    Brock_and_Roll
    As someone whose family runs care homes, you need to be very careful here. Rest home fees start at around 350 per person per week and nursing home fees can be 500-800 per week i.e. damn expensive.

    If in the next few years, your folks went into a care home, and the cost was circa 36k per annum, it would not be long before their funds were exausted and they had to ask the DSS to pay. The DSS these days are getting pretty hot on sniffiing out attempts by people trying to shift assets (almost always houses) before requiring long-term care - in this case the taxpayer is potentially being "ripped off" by 55k). Conseuqently, they may refuse to pay the fees or seek to overturn the sale.

    Ironically, and rather interesting from a social and moral perspective, the best way to put your assets out of reach of the state....is to spend it! It is not unknown for OAPs to blow fortunes on cruises etc just to as to get their assets below the required level for state support. Not much of an incentive to save!
  • curious george
    UK law and undervalue sales
    Hello I have just been reading the posts above and although this thread is old I have a similar question to that of the original.

    If the situation arose, I.e. you were selling/buying a property privately, and the seller some how ended up selling for considerably below market value. Can UK law protect the seller in any way?

    If so what would be the qualifying criteria? E.g 50% below market value?
    What rights does can seller call upon?
    What timeframe would the seller need to react in?
    Is anyone aware of UK test cases?
  • DVardysShadow
    Hello I have just been reading the posts above and although this thread is old I have a similar question to that of the original.

    If the situation arose, I.e. you were selling/buying a property privately, and the seller some how ended up selling for considerably below market value. Can UK law protect the seller in any way?

    If so what would be the qualifying criteria? E.g 50% below market value?
    What rights does can seller call upon?
    What timeframe would the seller need to react in?
    Is anyone aware of UK test cases?
    Originally posted by curious george
    Separate thread started on this by CuriousGeorge http://forums.moneysavingexpert.com/showthread.php?t=3041660 - I suggest discussion to that thread.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

64Posts Today

2,148Users online

Martin's Twitter
  • Oh if only one were brave/honest enough to say "my mental health" - in answer to the weakness question. I say this? https://t.co/RyihpzwPdY

  • Been out with the little one, just got back and turned the #c4debate on. What have i missed? Who is winning?

  • It's the weekend, it's the weekend, yay. It's that moment, when as usual, to sign off for family time. So I bid y? https://t.co/2RYRnz3fEe

  • Follow Martin