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Aston Lawyer
Aston Lawyer, Solicitor
Category: Law
Satisfied Customers: 10459
Experience:  Solicitor LLB (Hons) 23 years of experience in Conveyancing and Property Law
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Im trying to buy a property with my parents. It will require

Customer Question

Hi Im trying to buy a property with my parents. It will require us to sell the properties we currently live in and pool resources. My folks own their property outright, but I will still need a mortgage after selling mine. This is the snag as lenders wont lend to me whilst my parents have money in the property. Apparently its to do with the lender not having first charge on the money should the property need to be liquidated ie. if i default / die etc.
The only way around it I can see is for my parents to put me on the deed of their current property before selling it. Which i guess would mean that the proceeds would be legitimately mine and enable me to get a mortgage.
I suspect this will open up a 'gifting' can of worms...and inheritance tax issues, right?
Can anyone help?
Submitted: 1 year ago.
Category: Law
Expert:  Aston Lawyer replied 1 year ago.

Hello and thanks for using Just Answer.

My name is ***** ***** am happy to assist you with your enquiry.

Are your parents wanting to have their name on the Deeds to the new property you purchase?

Or are they prepared to gift you their contribution towards the purchase and for only your name to go on the Deeds?

Kind Regards

Al

Customer: replied 1 year ago.

Ideally they'd like to be on the deeds. But they are prepared to gift it and have it in my name if its not possible with them on the deeds. In that instance we thought that we could have a will that hands over to them and my wife if I die.

Re gifting I wondered if the gift could be split between my wife/me to limit any IHT issues?

the figures involved here (if thats helpful) is as follows:

Parents house = £600k (wholly owned)

My house = £400k (180k owned)

New house = £1m

Expert:  Aston Lawyer replied 1 year ago.

Hi,

Thanks for your reply

If your parents wanted to go on the Deeds, this would mean they would also have to be party to your Mortgage. I am not sure whether your Mortgage Lender would agree to this, bearing in mind your parents potential ages, but they may do. If youy are able to proceed on this basis, you can all hold the property as "Tenants in common" meaning that you all can agree on what percentage shares you have in the property.

Alternatively, if only you/your wife apply for the Mortgage, then only your names can appear on the Deeds. In this scenario, provided your parents were prepared to sign a simple letter stating that their contribution towards the purchas eprice was a gift, and is not repayable, your Mortgage Lender will be happy to proceed on this basis.

(Your parents contributing to the price is only an issue as far as your Mortgage Lender is concerned, IF your parents were wishing some sort of Charge registered against the property, in order to protect their financial interest).

As rgeards IHT, both your parents have a joint tax free estate of £650,000.Therefore, normally, if they were to make a gift to you, and then survived for 7 years, the amount of the gift would not be classed as forming part of their Estate when calculating its value.

However, if they were to live in the property with you, their gift would be classed as a "gift with a reservation" (ie one whereby they are reserving a benefit), and such gifts are classed as a "scam" by HMRC, in that the normal 7 year rule will NOT apply, and your parents will still be treated as owning the amount gifted, when calculating the value of their Estates upon their death. In simple terms, therefore, they would be treated as still owning the £600 odd thousand they give to you even if they were to die in 20 years.

I hope this assists and gives you the legal overview. No doubt the Solicitor who acts for you will be able to confirmt he above.

Kind Regards

Al

Customer: replied 1 year ago.

OK i think i get that. So basically thats no different to the situation we are in now regarding IHT. i.e. that they own a 600k property that (when they die) will be liable for IHT.

Expert:  Aston Lawyer replied 1 year ago.

Hi,

You are correct- afraid you can't have it both ways- as your parents will be living there, the 600K contribution will still be treated as their own money, as opposed to a true gift.

All the best.

Al

Customer: replied 1 year ago.

Sorry two more questions!

1) presumably at that point there are ways of mitigating the amount of tax paid by making a will that splits the inheritance between my wife (and maybe my children??) and I - and thereby making best use of the tax thresholds?

2) Would a will or some document be able to be drawn up to protect my parents should i die - as they arent on the deeds. presumably I just bequeath 50% of my estate to them?

thanks in advance

Expert:  Aston Lawyer replied 1 year ago.

Hi,

1) As your parents have a joint tax free estate on the current figures of £650,000, it will make no difference who ends up receiving what in the Wills. At the end of the day, the 6000k will eat into their tax free sum of £650,000.

2) You should certainly make a Will, granting your parents a right to remain living in the property for a slong as they wish/die. This is quite straight forward for your Solicitor to do.

Hope this helps.

Kind Regards

Al

Expert:  Aston Lawyer replied 1 year ago.

Hi,

If I have assisted you, I would be grateful if you could leave positive feedback.

Cheers

Al

Customer: replied 1 year ago.

lastly. At the start of this question i suggested going on the deeds of my parents current house so that the proceeds became mine. But it sounds like this isnt necessary - that they just sell the house and gift me the proceeds?

Expert:  Aston Lawyer replied 1 year ago.

Hi,

Going on your parents existing property Deeds won't benefit you/be required.

You are therefore correct that they can just go ahead and sell in the normal fashion and gift the funds to you.

Kind Regards

Al

Aston Lawyer and 3 other Law Specialists are ready to help you
Customer: replied 1 year ago.

Hi Me again!

A couple more questions.

If my parents gifts me the 600k. Would that affect my tax in the year it was given or would the tax only be relevant on their death?

Thanks

James

Expert:  Aston Lawyer replied 1 year ago.

Hi again,

I would be grateful if you could post this as a new question.

Many thanks

Al