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Alex J.
Alex J., Solicitor
Category: Law
Satisfied Customers: 3655
Experience:  Solicitors 2 years plus PQE
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Hi, I am going to our purchase a house from 2 family members

Customer Question

Hi,
I am going to our purchase a house from 2 family members who have inherited a property. Family member a) has inherited 2/3rds of the property. B) has inherited 1/3rd of the property. Family member b) will be helping me financially to purchase the house, but needs the proceeds of the sale of the house to achieve this.
House price is £400k. A) will therefore need to receive £266k and b) £133k.

My mortgage to purchase the house will be £300k + my cash deposit (£50k)+ assistance from memer b) (£50k).
Is it possible for family member b) to gift part of the house to me to the value of £(50k)?
How would this work with the probate, inheritance tax and mortgage lender?

Thanks in advance.
Submitted: 3 years ago.
Category: Law
Expert:  Alex J. replied 3 years ago.
Hi

Thank you for your question and welcome.

My name is AJ and I will assist you.

If he is gifting you this part of the property, is there no obligation to ever repay it?

Kind regards

AJ
Customer: replied 3 years ago.
Hi AJ

No obligation to repay it. Will it need to be gifted to the value of £50k for this to work?

BR
Steve
Expert:  Alex J. replied 3 years ago.
Hi

Thank you.

On the basis that this is a non commercial transaction could you not just reduce the price by £50k or will this effect the mortgage?

The issue with the gift is effectively the gifting party will have to survive for 7 years from the date of the gift otherwise it could become liable to inheritance tax. This is known as a potentially exempt transaction.

The alternative is you pay the full price for the property but the seller will just acknowledge that they won't receive £50k of the purchase price as paper transaction. The only danger of this is if they go insolvent within 2 years any trustee in bankruptcy could unwind the transaction.

Therefore in my opinion if you can get your mortgage company to agree and get a valuer to agree you should just reduce the price by £50k as it will cause the fewest problems in terms of potential tax Liabilities or issues of insolvency. Before doing this you should check with a property tax expert that arrangement will be accepted by HMRC for Stamp Duty valuation.

I look forward to hearing from you.

Kind regards

AJ
Customer: replied 3 years ago.
Hi,

Thanks for the reply.
If purchase price is reduced,this will cause an issue with valuation for the probate and the tax paid. It will also cause issue with the mortgage and stamp duty I believe. What would I need to do to pay full price and have the seller acknowledge they won't receive the £50k - is this a simple contract I could get a conveyancing solicitor to include!

BR
Steve
Expert:  Alex J. replied 3 years ago.
Hi

Thank you.

Yes a conveyancing solicitor could do this. The seller will then have to execute a deed releasing you from the obligation to repay.

The only risk is if he either does insolvent within 2 years or dies within 7 years. If he goes insolvent then his trustee could challenge the arrangement and force you to pay the £50k if he dies within 7 years then you may be liable to pay inheritance tax.

This arrangement is fairly straight forward and fairly common. The deed releasing you from payment is a short document and the solicitor would probably charge about £250 plus VAT to draft it. I would just make sure you don't tell the bank if you don't have to.

Kind regards

AJ
Customer: replied 3 years ago.
Hi AJ

Apologies for the late reply, I had an issue with my login.
How could I avoid telling the bank, they would need to transfer the funds from the mortgage of £300k and this would need to be based on me giving a deposit of my £50k + another £50k from family member b). ?
Expert:  Alex J. replied 3 years ago.
Hi

Thank you.

Technically if they ask you have to tell them.
However if they don't ask it is not worth telling them as it will affect the valuation.

The bottom line is you are paying full price for the property but part of the payment is being postponed. This won't affect the banks security.

I look forward to hearing from you.

Kind regards

AJ

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