Advice on buying Parents house under value

discokidda · 3 May 2010 at 7:16PM

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!

Emmzi · 3 May 2010 at 7:49PM

who is funding their stay in sheltered housing?

wildbri · 3 May 2010 at 8:11PM

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 · 3 May 2010 at 10:11PM

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 May 2010 at 8:47PM

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 · 5 May 2010 at 8:52PM

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.

discokidda · 5 May 2010 at 9:35PM

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 · 5 May 2010 at 9:40PM

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 · 5 May 2010 at 10:05PM

discokidda wrote: »

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!

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.

discokidda · 5 May 2010 at 10:31PM

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 · 6 May 2010 at 8:39AM

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.

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Advice on buying Parents house under value

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