can i do this (mortgage question)

borichnuke

borichnuke

borichnuke

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My parents own a house worth around 400k and currently have a mortgage of 36k on it. Due to my the house being too big they were going to sell it and move to their other house and retire there. However my dad has suggested the following.

Add me to the deeds si the house is owned by my parents and I. Then we get a re mortgage on the property for 75k which I would then pay over the next 25 years. This would pay off my 12k student loan and the other 60k would pay off my parents mortgage and give them some cash to play with. They are going to live in the house for a few more years and then eventually in 10 years or so I would remove them from the deeds. Therefore I get a house at a decent price?

Borich
 
I really don't get why there is problems with this, Im sure there must be a reason, could someone explain it to me?
 
Effectively they are just selling the house to you for 75k and with the money they make paying off yours and their debts.

Sounds good to me :)
 
I have done this but done it as a private sell between my Dad and I.

Basically my Dad was left a house in a will which I wanted to buy. The price was 60K so there was no tax on it. This was about 9 years ago.

We both had seperate solicitors for the paperwork. I got the mortgage and then my Dad got the money.

This way means you are the only one on the deeds but it doesn't mean your parents have to move out.
 
Two things I vaguely remember my solicitor OH babbling on about. Needing to occupy the house for seven years in order for it to be 'yours' (if they pass away after six, you get hit with Inheritance Tax) and being hit with stamp duty on the actual value of the house, not what you paid for it (this apparently to stop people selling a house for a pound then so many thousands 'fixtures and fittings').

Of course IANAL (I am not a lawyer) and with anything to do with mortgages, get yourself to a solicitors before assuming anything.
 
If they die within 7 years or something then you have to pay tax, i think you would also dodge tax again if you sold it because it is your main home and you live in it. I am not 100%.
 
Seriously - you will need to speak to somebody who knows exactly what they are doing.
You can't sell a £400k house for £75k without tax issues - you are in effect selling assets off at considerably below the market rate and it would be viewed as avoiding tax.

Take proper advice on this one.
 
The government have recently cracked down on this as it was a good loophole which many people used years back.

Unfortunately, with the introduction of the HIP you must have your house accurately valued. This basically means that my parents cant sell me thier house for 1p to avoid tax.

Not only are we looking at inheritance tax, but you'd also be looking at capital gains tax, both of which are killers.

My parents recently investigated other options. The best one of these is as follows:

Inheritance tax limit is £300k per spouse. So, £600k in total. Assuming one partner dies, the property automatically goes to the other party with no tax implications.

Now, here's the sneaky bit which I cant advise on these forums.

When the other partner dies, in our case, the government cannot touch that £600k, they cant make me sell the house to pay for nursing home fees, nothing. They can only tax on the estate over £600k (which wouldn't be a mega load).

Get some proper IFA advice though and ask them about this method.
 
The 'proceeds' for IHT and CGT purposes would be deemed to be market value not the price the house is sold for.
If your parents are in good health and expected to live more than 7 years then you'll probably get away with paying any tax but you'll need to speak to someone to get this sorted for you so it's done properly (not necessarily the way you want to do it in your post). A solicitor and/or accountant would be best.
 
Any gift to you would be a Potentially Exempt Transfer for inheritance tax purposes so the 7 year rule applies. At the outset it will be necessary to determine the true value of the house and the %age split between the 3 of you

Say you get 33% (£133k for only £75k less £12k), there's a PET of £70k. All 3 of you live in the house - no rent or income tax implications. You'll have to prove to the Revenue that you share equally in maintenance/council tax/utilities
When they leave and gift you the rest, that'll be a further PET of £257k (assuming that house prices remain static). Note that when you come to sell, you might get slapped for Capital Gains Tax since the house won't have been solely your Principal Private Residence for all the time you have an ownership share

Say you get 100%, there's a PET of £327k. Your parents have to start to pay you rent and you pay income tax on that rent. You are responsible for all bills

Bear in mind that the Revenue have god-like powers when determining what's a tax dodge and what's not. On the whole, if they say it's a tax dodge - it is, and it would be up to you to prove them wrong

Take some professional advice
 
borichnuke said:
re mortgage on the property for 75k which I would then pay over the next 25 years. This would pay off my 12k student loan
Click to expand...

Not strictly relevant to your question, but alarm bells are ringing in my head here!

Essentially what you are saying is that you are going to take out a mortgage to pay off your student loan (amongst other things). This is a very bad idea because:

1) The overall effective mortgage rate (once taking any fees etc into consideration) will almost certainly be higher than the rate of interest on the student loan (currently 4.8% iirc). Effectively what you will be doing is changing to a more expensive loan.

2) Student loan repayment is linked to income and thus you are inherently protected against things like losing your job or taking a pay cut. Whereas a mortgage lender will alway want their money each month (ignoring things like payment holidays etc). Worst case scenario is that you could be forced to sell your home to pay the repayments, something which would never happen with a student loan.

Much better option would just be to take a £63k mortgage and leave the student loan as it is.
 
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