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
    • IM
    • By IM 20th Sep 04, 6:41 PM
    • 337Posts
    • 40Thanks
    IM
    Buying property from family
    • #1
    • 20th Sep 04, 6:41 PM
    Buying property from family 20th Sep 04 at 6:41 PM
    My wife and I currently rent our house from her parents, but will be looking to buy it from them within the next few months.

    Whilst this should make for an easier process in some respects - we're are pretty sure that they aren't going to set out to shaft us, like most vendors would - I'm equally sure that there are going to be issues to address.

    Can anyone offer any guidance/experience on buying property from family (or outside the estate agent loop in general) in terms of the legal side, mortgage lender's response, practicalities etc.

    Many thanks

    Iain
Page 1
    • Pal
    • By Pal 20th Sep 04, 10:50 PM
    • 2,062 Posts
    • 731 Thanks
    Pal
    • #2
    • 20th Sep 04, 10:50 PM
    Re: Buying property from family
    • #2
    • 20th Sep 04, 10:50 PM
    Mortgage company will not care. They will want a survey as normal and will them make you a mortgage offer (or not as the case may be).

    The get a solicitor to handle the paperwork and liase with the mortgage company. They will get the money transferred into your parents accounts on the day the deal completes.

    Easy really.

    The only thing you might want to do is get quotes from a few estate agents for its value so your parents are happy with the price you are paying. Also, remember to knock off the value of any "deposit" you are paying so that you don't pay stamp duty on it.
    • Tim_L
    • By Tim_L 20th Sep 04, 11:17 PM
    • 3,399 Posts
    • 3,233 Thanks
    Tim_L
    • #3
    • 20th Sep 04, 11:17 PM
    Re: Buying property from family
    • #3
    • 20th Sep 04, 11:17 PM
    I think that the advice about reducing the price by the deposit to reduce stamp duty could be costly.

    Firstly, the IR are clamping down on stamp duty avoidance on house sales. The onus is on you to declare the actual total price paid when filling out your self assessment forms, and there are penalties if you don't.

    Then if your wife's parents go into residential care, there could be problems and liabilities if you have effectively bought the house at less than its market value. The investigations can go back many years.

    And finally if the parents were to die within 7 years of the sale, there would be inheritance tax liabilities.

    What you need to ensure with this sort of thing is that you pay a reasonable market value. This doesn't rule out getting a lowish price taking into account there will be no estate agents fees for the seller and so on, but you may have to justify the price you paid to someone in the future. Very well worth getting advice from your solicitor on what the precise position is.
    • Pal
    • By Pal 21st Sep 04, 11:49 AM
    • 2,062 Posts
    • 731 Thanks
    Pal
    • #4
    • 21st Sep 04, 11:49 AM
    Re: Buying property from family
    • #4
    • 21st Sep 04, 11:49 AM
    I was assume a relatively small deposit (5 or 10%). If they have a 50% deposit then I definitely agree with Tim.
    • IM
    • By IM 21st Sep 04, 4:03 PM
    • 337 Posts
    • 40 Thanks
    IM
    • #5
    • 21st Sep 04, 4:03 PM
    Re: Buying property from family
    • #5
    • 21st Sep 04, 4:03 PM
    Thanks for the advice so far.

    To clarify a little....

    There are (hopefully) no issues relating to my wife's parents going into a residential home/inheritance tax. (They are only in their late 50s, and are selling to us because they live permanently on a canal boat).

    We are hoping to get the house valued in the next few days, but I'd hope that we will only need to borrow about 50% of the cost of the property.

    Was the suggestion about avoiding Stamp Duty, that we would give that 50% direct to the in-laws, and tell the Big Mad Tax Man that the sale price was the remaining 50%?

    Hmmm…. Can't see us getting away with that.

    I think that they are going to ask for a figure a bit below the market price, as a present to us. How is the best way to handle this, bearing in mind we want this as a 'fighting fund' for work around the house, rather than just a smaller mortgage?

    To illustrate with (totally made up, but simple) figures….

    Valuation of house = 100,000
    Agreed sale price = 90,000
    Our deposit = 60,000

    If they has 10,000 in cash lying around to give us, this would be straight forward - we would just need to agree a sale price of 100,000 and borrow 30,000.

    Assuming they don't*, we could effectively not mention the family agreement to the mortgage company, borrow 40,000, and then get the in-laws to give us the 10,000 once they get the cheque for 100,000. Presumably though, this would present tax implications for them (and indeed for us).

    What is the best way to do this, which is a) legal and above-board, and b) minimises tax repercussions all round?

    *And they don't! They don't have the cash to give us, but are happy to make a slightly smaller profit on a house for which they no longer have a mortgage.
    • Tim_L
    • By Tim_L 21st Sep 04, 9:02 PM
    • 3,399 Posts
    • 3,233 Thanks
    Tim_L
    • #6
    • 21st Sep 04, 9:02 PM
    Re: Buying property from family
    • #6
    • 21st Sep 04, 9:02 PM
    You need to talk to a solicitor who specialises in tax law really.

    The Inland Revenue have their own means of valuing houses, so the price you pay must be reasonable in comparison with other transactions locally. I agree with Pal that shaving a small percentage portion off is probably not going to cause a problem, unless it takes you across a stamp duty threshold.

    You probably do need to consider IHT, even though your parents are young, as accidents can happen - it would be very annoying to get hit with a large tax bill unexpectedly if the worst were to happen. The figures you quote - 100k - wouldn't really be any sort of problem at all, as there wouldn't be any IHT liability whatever happened assuming no other significant assets. But since these are illustrative, I guess the actual amounts could be much higher.

    If this is the case, then as far as gifts go, it's probably much better tax wise to buy the house at the full price, then as you suggest have your parents give you some of the purchase money back as a gift at some point (perhaps not immediately). If this is a one off gift, they can each use two of their annual gift allowances (i.e this year and last years), which will allow them each to gift 6000, i.e. a total of 12000.

    However do check with a solicitor to see if there are any problems with the transactions being viewed as linked.

    • IM
    • By IM 24th Sep 04, 12:21 PM
    • 337 Posts
    • 40 Thanks
    IM
    • #7
    • 24th Sep 04, 12:21 PM
    Re: Buying property from family
    • #7
    • 24th Sep 04, 12:21 PM
    Before we sit down with my wife's parents to discuss figures, we want to get a survey done so that we know what we are taking on - and so that if it turns out the place is falling down, they will be able to make a claim on their buildings insurance, before we buy.

    If we just engage the services of a surveyor ourselves, could our mortgage lender (as and when we find one) turn around and demand another survey, or would they just take the findings as the basis for their offer?
    • Pal
    • By Pal 24th Sep 04, 1:10 PM
    • 2,062 Posts
    • 731 Thanks
    Pal
    • #8
    • 24th Sep 04, 1:10 PM
    Re: Buying property from family
    • #8
    • 24th Sep 04, 1:10 PM
    They would carry out their own survey anyway.
    • IM
    • By IM 24th Sep 04, 3:00 PM
    • 337 Posts
    • 40 Thanks
    IM
    • #9
    • 24th Sep 04, 3:00 PM
    Re: Buying property from family
    • #9
    • 24th Sep 04, 3:00 PM
    So we pay out for two surveys...?

    Boo... :'(
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

2,187Posts Today

9,038Users online

Martin's Twitter