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
    • ld123098
    • By ld123098 8th Mar 18, 10:50 AM
    • 9Posts
    • 0Thanks
    ld123098
    Buying from parents
    • #1
    • 8th Mar 18, 10:50 AM
    Buying from parents 8th Mar 18 at 10:50 AM
    Hi Guys,

    Bit of a strange one but....

    My parents have decided to move permanently to their bungalow in Spain. They've offered to sell me their house, but instead of me paying a mortgage, they've said I can pay them an agreed amount monthly for the next 15 years, which would equate to the value of the house (no interest). I have a few concerns which I'm struggling to find info about.
    As I have a brother, should my parents pass away, the remainder of what I owe would be split between us as part of our inheritance. How do we make this legal and is this possible?
    Secondly, my parents would be using our monthly payment to supplement their pensions, but this isn't an income as such, as it's the proceeds from the sale of their home. How do they avoid paying income tax on this money?
    Are their any other pitfalls we need to be aware of.
    Much apreciated,

    Leon
    Last edited by ld123098; 08-03-2018 at 10:51 AM. Reason: typo
Page 1
    • theartfullodger
    • By theartfullodger 8th Mar 18, 12:28 PM
    • 9,592 Posts
    • 12,904 Thanks
    theartfullodger
    • #2
    • 8th Mar 18, 12:28 PM
    • #2
    • 8th Mar 18, 12:28 PM
    How were you going to arrange that with Land registry? How will the regular payment be documented?

    Sounds like a recipe for a disaster, so many things could go wrong. Much better you simply buy, normal market value, and then parents can leave whatever they like to whoever they like.

    (No offence but usually one of a couple depart this life 1st, remaining one meets someone else & remarries and changes will and who gets wot... These cunning plans fall apart for this & many many other reasons...)
    • ld123098
    • By ld123098 8th Mar 18, 12:35 PM
    • 9 Posts
    • 0 Thanks
    ld123098
    • #3
    • 8th Mar 18, 12:35 PM
    • #3
    • 8th Mar 18, 12:35 PM
    Hi
    These are the sort of things we are wanting to know. We can't possibly be the first people to do this. If I buy, through the normal route, I will pay over 100000 in interest.
    • theartfullodger
    • By theartfullodger 8th Mar 18, 12:39 PM
    • 9,592 Posts
    • 12,904 Thanks
    theartfullodger
    • #4
    • 8th Mar 18, 12:39 PM
    • #4
    • 8th Mar 18, 12:39 PM
    ......... If I buy, through the normal route, I will pay over 100000 in interest.
    Originally posted by ld123098
    So, the converse of that, mum & dad and proposing to subsidise you with over 100,000.... How's bruv feeling about that?

    Go talk to a solicitor: And advise mum & dad to also (different solicitor) and advise brother to talk to a 3rd solicitor...
    • davidmcn
    • By davidmcn 8th Mar 18, 12:48 PM
    • 7,844 Posts
    • 8,030 Thanks
    davidmcn
    • #5
    • 8th Mar 18, 12:48 PM
    • #5
    • 8th Mar 18, 12:48 PM
    If there's any balance of the loan due at the date of death of your surviving parent, the loan is an asset of the estate - so up to your parents' Wills who gets the benefit of it.

    Repayments of an interest-free loan aren't "income" for the purpose of (UK) Income Tax. Parents will need to check if there's any Spanish tax implications.
    • ld123098
    • By ld123098 8th Mar 18, 12:54 PM
    • 9 Posts
    • 0 Thanks
    ld123098
    • #6
    • 8th Mar 18, 12:54 PM
    • #6
    • 8th Mar 18, 12:54 PM
    So, the converse of that, mum & dad and proposing to subsidise you with over 100,000.... How's bruv feeling about that?

    Go talk to a solicitor: And advise mum & dad to also (different solicitor) and advise brother to talk to a 3rd solicitor...
    Originally posted by theartfullodger
    My brother's ok with it, he couldn't afford to buy the house anyway. My parents aren't giving me anything, just saving me the interest, which would just go straight to the bank.
    • eddddy
    • By eddddy 8th Mar 18, 1:10 PM
    • 6,493 Posts
    • 6,380 Thanks
    eddddy
    • #7
    • 8th Mar 18, 1:10 PM
    • #7
    • 8th Mar 18, 1:10 PM
    Most people here will tell you not to get into arrangements like this with your family, because things are likely to go sour - that's for you to decide.

    Anyway, there are many options you could follow (let's assume the house's value is 250k), here's 2 of them...

    Option 1
    • Your parents could gift the house worth 250k to you
    • You could gift 1k per month to your parents for 250 months
    • Should your parents die sooner than 250 months, you start gifting 500 per month to your brother

    Assuming your parents don't die within 7 years, this could be very tax efficient.

    But... if you 'fall-out' with your parents/brother and stop gifting them - there would be nothing they could do to make you pay.

    Option 2
    • Your parents formally lend you 250k to buy their property (perhaps they put a charge on the property)
    • You repay the loan to them at 1k per month

    If you 'fall-out' with your parents and stop paying, they can take you to court (so they are better protected)

    But... if your parents die before the loan is paid off, the outstanding part of the loan will be added to their estate, which might increase the inheritance tax bill.


    Plus there are numerous other possibilities.
    • ld123098
    • By ld123098 8th Mar 18, 1:23 PM
    • 9 Posts
    • 0 Thanks
    ld123098
    • #8
    • 8th Mar 18, 1:23 PM
    • #8
    • 8th Mar 18, 1:23 PM
    Cheers for the advice. Option 2 was the sort of thing we were looking at. Whilst personally I know there's no chance of us falling out and me not paying, I want to keep it all correct so everyone's happy. We will of course, be seeing a solicitor, but I'm just keen to get all the options and pitfalls straight in my head before we proceed.
    • Mojisola
    • By Mojisola 8th Mar 18, 1:46 PM
    • 29,388 Posts
    • 75,034 Thanks
    Mojisola
    • #9
    • 8th Mar 18, 1:46 PM
    • #9
    • 8th Mar 18, 1:46 PM
    Option 2 was the sort of thing we were looking at.
    Originally posted by ld123098
    It's fairly straightforward to set up.

    For some families, getting involved financially with each other is a nightmare; for others, it works well.
    • eddddy
    • By eddddy 8th Mar 18, 1:49 PM
    • 6,493 Posts
    • 6,380 Thanks
    eddddy
    My parents have decided to move permanently to their bungalow in Spain.
    Originally posted by ld123098
    Completely off topic... but if your parents own that bungalow in Spain (or have other assets in Spain) have they taken advice on Spanish Succession law?

    If they don't set up things correctly, they can find that Spanish law overrides their wishes in their UK will. (I know of a 'complicated' family that was torn-apart because of this.)

    There's a discussion here: https://www.spanishpropertyinsight.com/2015/01/08/spanish-wills-probate-law-light-european-regulation/
    • ld123098
    • By ld123098 8th Mar 18, 1:57 PM
    • 9 Posts
    • 0 Thanks
    ld123098
    [QUOTE=eddddy;73993429]Completely off topic... but if your parents own that bungalow in Spain (or have other assets in Spain) have they taken advice on Spanish Succession law?

    If they don't set up things correctly, they can find that Spanish law overrides their wishes in their UK will. (I know of a 'complicated' family that was torn-apart because of this.)

    They haven't yet, but I will make sure they do. They're currently classed as UK residents, but are going to apply for residencia in Spain this year. Cheers for the help. Much appreciated.
    • saajan_12
    • By saajan_12 8th Mar 18, 5:47 PM
    • 1,254 Posts
    • 875 Thanks
    saajan_12
    Hi Guys,

    Bit of a strange one but....

    My parents have decided to move permanently to their bungalow in Spain. They've offered to sell me their house, but instead of me paying a mortgage, they've said I can pay them an agreed amount monthly for the next 15 years, which would equate to the value of the house (no interest). I have a few concerns which I'm struggling to find info about.
    As I have a brother, should my parents pass away, the remainder of what I owe would be split between us as part of our inheritance. How do we make this legal and is this possible?
    Secondly, my parents would be using our monthly payment to supplement their pensions, but this isn't an income as such, as it's the proceeds from the sale of their home. How do they avoid paying income tax on this money?
    Are their any other pitfalls we need to be aware of.
    Much apreciated,

    Leon
    Originally posted by ld123098
    So your parents sell you the house at full market value x. They loan you x, placing a charge on the property with a formal agreement to repay 1000 per month on the capital, 0% interest. Tax implications:

    - Stamp Duty: you pay based on x purchase price (may be 0 Stamp Duty if its below the FTB stamp duty thresholds)

    - CGT: parents pay based on x sale price (may be 0 CGT if parents have always lived there)

    - Income tax: The monthly 1000 are just capital repayments, tax is only due on the interest income which is 0.

    - Inheritance tax: the full value of the loan x will remain part of parents' estate, so will pay IHT on the full amount.

    - Council tax etc: Your responsibility

    -

    My brother's ok with it, he couldn't afford to buy the house anyway. My parents aren't giving me anything, just saving me the interest, which would just go straight to the bank.
    Originally posted by ld123098
    Ofcourse they are giving you something, a free loan. They could instead invest that money, to get a return comparable to the mortgage interest you're saving. Or, they could put it in an easy access bank account / ISA / fund to get some interest as well as keep the opportunity benefit, that if they ever need the money they don't have to borrow themselves e.g. for repairs to their Spanish home, retirement expenses..
    • ld123098
    • By ld123098 9th Mar 18, 9:47 AM
    • 9 Posts
    • 0 Thanks
    ld123098
    So your parents sell you the house at full market value x. They loan you x, placing a charge on the property with a formal agreement to repay 1000 per month on the capital, 0% interest. Tax implications:

    - Stamp Duty: you pay based on x purchase price (may be 0 Stamp Duty if its below the FTB stamp duty thresholds)

    - CGT: parents pay based on x sale price (may be 0 CGT if parents have always lived there)

    - Income tax: The monthly 1000 are just capital repayments, tax is only due on the interest income which is 0.

    - Inheritance tax: the full value of the loan x will remain part of parents' estate, so will pay IHT on the full amount.

    - Council tax etc: Your responsibility

    -



    Ofcourse they are giving you something, a free loan. They could instead invest that money, to get a return comparable to the mortgage interest you're saving. Or, they could put it in an easy access bank account / ISA / fund to get some interest as well as keep the opportunity benefit, that if they ever need the money they don't have to borrow themselves e.g. for repairs to their Spanish home, retirement expenses..
    Originally posted by saajan_12
    Thanks for the info, very informative. They have a nestegg in the bank so wouldn't ever need to borrow anything in Spain for property repairs. Should something major happen in the future, which meant they did need the money immediately, for say, medical reasons for instance, I assume I could take a mortgage out on the property to pay them back.
    • davidmcn
    • By davidmcn 9th Mar 18, 10:00 AM
    • 7,844 Posts
    • 8,030 Thanks
    davidmcn
    I assume I could take a mortgage out on the property to pay them back.
    Originally posted by ld123098
    Only with difficulty if your parents already have a mortgage on the property for their loan.
    • AdrianC
    • By AdrianC 9th Mar 18, 11:05 AM
    • 17,602 Posts
    • 15,968 Thanks
    AdrianC
    Secondly, my parents would be using our monthly payment to supplement their pensions, but this isn't an income as such, as it's the proceeds from the sale of their home. How do they avoid paying income tax on this money?
    Originally posted by ld123098
    It's Spanish income tax that they need to be thinking of, since they'll be Spanish residents, but it's very unlikely repayments of a 0% interest loan will be viewed as income.

    How were you going to arrange that with Land registry? How will the regular payment be documented?
    Originally posted by theartfullodger
    Why would it need to be "documented"?
    Ownership will change from parents to OP - LR reflects that.
    The parents will not putting a charge on the property, I presume, so nothing lodged for that.

    Completely off topic... but if your parents own that bungalow in Spain (or have other assets in Spain) have they taken advice on Spanish Succession law?

    If they don't set up things correctly, they can find that Spanish law overrides their wishes in their UK will. (I know of a 'complicated' family that was torn-apart because of this.)
    Originally posted by eddddy
    They haven't yet, but I will make sure they do. They're currently classed as UK residents, but are going to apply for residencia in Spain this year. Cheers for the help. Much appreciated.
    Originally posted by ld123098
    Nothing to do with "applying". That's just whether they can reside there legally. For tax purposes, they're residing in the country they spend at least half the tax year in. Their assets will fall under whichever IHT regime the assets are in - so their Spanish property will be under Spanish inheritance law, the outstanding balance of the loan will be under UK.

    As a rough rule of thumb, if you owe 100k on the loan, and your parents leave 300k in Spain, then you'd be due 100k from the Spanish assets, since their total assets are 400k to be divided equally between two.

    I presume they've considered brexit implications around healthcare, as well as exchange rate fluctuations.
    • ld123098
    • By ld123098 9th Mar 18, 11:07 AM
    • 9 Posts
    • 0 Thanks
    ld123098
    Only with difficulty if your parents already have a mortgage on the property for their loan.
    Originally posted by davidmcn
    My parents own the property outright, so the 'loan' they would be giving me would be completely on paper, or at least, we're hoping that's out it will work. I assume they don't have to physically loan me the cash, for me to then give the cash back to them to purchase the property.
    • ld123098
    • By ld123098 9th Mar 18, 11:14 AM
    • 9 Posts
    • 0 Thanks
    ld123098
    It's Spanish income tax that they need to be thinking of, since they'll be Spanish residents, but it's very unlikely repayments of a 0% interest loan will be viewed as income.


    Why would it need to be "documented"?
    Ownership will change from parents to OP - LR reflects that.
    The parents will not putting a charge on the property, I presume, so nothing lodged for that.


    Nothing to do with "applying". That's just whether they can reside there legally. For tax purposes, they're residing in the country they spend at least half the tax year in. Their assets will fall under whichever IHT regime the assets are in - so their Spanish property will be under Spanish inheritance law, the outstanding balance of the loan will be under UK.

    As a rough rule of thumb, if you owe 100k on the loan, and your parents leave 300k in Spain, then you'd be due 100k from the Spanish assets, since their total assets are 400k to be divided equally between two.

    I presume they've considered brexit implications around healthcare, as well as exchange rate fluctuations.
    Originally posted by AdrianC
    If they want to legally spend more than 3 months a year in Spain, they have to apply for a residency card, which means being able to prove income etc. They have friends and family who have lived in Spain, some for over 20 years, so I'm pretty sure they're aware of the rules. I believe, as pensioners, once they have residencia, they're entitled to healthcare. How Brexit will affect this I don't know, but I doubt very much that they're going into this with closed eyes.
    • davidmcn
    • By davidmcn 9th Mar 18, 11:26 AM
    • 7,844 Posts
    • 8,030 Thanks
    davidmcn
    My parents own the property outright, so the 'loan' they would be giving me would be completely on paper, or at least, we're hoping that's out it will work. I assume they don't have to physically loan me the cash, for me to then give the cash back to them to purchase the property.
    Originally posted by ld123098
    Yes, but as suggested above it may be sensible for them to require you to grant them a charge over your property in security of the sums you're repaying them. That would then get in the way of another lender also wanting a charge over the property, as generally lenders like to have the first (and only) charge over the secured property. Though if they were desperate for the cash they may be prepared to discharge their security in order that you can get more funds elsewhere.
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

2,964Posts Today

4,330Users online

Martin's Twitter