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F E Smith
F E Smith, Advocate
Category: Law
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Experience:  I have been practising for 30 years.
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I'd appreciate some advice on a house purchase. My wife and

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HI. I'd appreciate some advice on a house purchase.My wife and I own a home worth c.£700k with a c.£225k mortgage and my mum owns a home without a mortgage worth c.£1 million. We'd like to combine forces to buy a home for about £1.75 million. The problem is that coordinating waiting for us to both sell in time to purchase the new house might not be possible: sellers are unlikely to find that attractive.We also want to ensure that the new home is ultimately in my wife and I's name. So the likely solution is that my mum sells her place and then we buy the house with the proceeds of her current home, some cash savings my mum has and extending our current mortgage (albeit for a limited time until we then sell). My understanding is that we wouldn't be able to put the new place in my wife and I's name initially without attracting additional stamp duty (as we would still own the current place at that point). So is it possible for my mum to buy the new place and then once we have sold our existing place a few weeks / months later, she sells the new property to us for £1?When we sell our existing place we'd pay off our existing mortgage in full. Then when my mum sells the new place to us for £1, my wife and I would then need to take out a mortgage on the new place to pay my mum back for her cash savings mentioned above.We'd then also want to put in place some agreement signed by all three of us that the money that my mum has invested in the property is ring fenced should my wife and I ever divorce.Frankie

Hello for clarification - how will your mum inhabit the new home - her own separate annexe or share all the living space?

Customer: replied 7 months ago.
Hi. It's currently a five bed house with a big garage attached to the side that we'd convert into a two floor annexe for her to live in. So in the immediate term in the main house but fairly quickly (probably shortly after we've moved in) after that she'd migrate into the annexe.There is no burning platform for her to pass on ownership to us, but just within a reasonable timeframe such as a year ideally. Thanks.

The first thing you need to consider is what happens with you and your wife split up or either of you don’t get on with your mother or for whatever reason it doesn’t work out or your mother goes into care?

Just because the new house may be in you and your wife’s name doesn’t necessarily mean that it’s going to escape the local authority clutches to pay for care fees if your mother doesn’t have enough liquid cash to pay that.

You are doing this therefore for that reason, it’s not guaranteed to work.

Provided any replacement property is purchased within three years, the stamp duty can be reclaimed.

Your mother could have a charge on the house to ring fence her share although any first mortgage lender would need to consent to that and you would have to confirm that it wasn’t repayable until the property was sold. Lenders don’t like additional borrowing. The lender would have to consent to your mother’s charge.

If they will not, then it’s easy enough to have a deed of trust whereby you hold a percentage of the property on trust for your mother and then that is registered as a restriction against the property.

The difficulty here is that your mother doesn’t like living with you and she decides she wants to move out, you are going to have to sell the house so that really does need some careful consideration.

I know it might be all positive at the moment, but I have had this kind of question on dozens of occasions where people are trying to extricate themselves from an arrangement which they thought was going to last forever because whilst they got on swimmingly before they lived together, they were drowning when in the same house.

Can I clarify anything else for you?

I’m happy to answer any specific points arising from this.

Please take a moment to look at the top right hand corner of the page and rate my service by clicking one of the stars at the top of the screen. It’s important you use the rating service because that gives me credit. It doesn’t just give me a pat on the head! (Although there is an incentive scheme where the more five-star ratings I get, I do actually get a pat on the head! :-)) All you need to do is press Submit. Thank you.

If you still need any point clarifying, I will still reply because the thread does not close.

Best wishes.

FES.

Customer: replied 7 months ago.
Thanks: really useful insight.My mum is only 59 (both parents alive in their nineties) and she will be in a seperate dwelling (seperate front door) once the annexe has been built so I think your concerns on ill health and being on top of each other are worth serious discussing, but hopefully lower risk than average.The deed of trust seems like a logical working assumption for now. If my wife and I split up then we'd probably have to sell the home so she can get her share. It's just understabdably essential she doesn't get a share of mum's capital too.Can you just expand the stamp duty piece? Are you saying that my wife and I could purchase the house whilst still owning our current flat then reclaim the additional stamp duty payable on second home purchases? Thanks.

I am glad to help. If you are getting divorced and she could convince the court that all this money donated by your mother was a gift to both of you regardless of the trust, she may potentially have a claim against it. I say potentially because when pound signs are flying around, claimants can be quite creative. I think there is little chance she would get anything because this hasn’t been done to put money beyond her reach but just beware.

It’s not unknown for people to keep an existing house and buy another one because they couldn’t coordinate the sale and the purchase. They would then pay the extra Stamp duty on the additional purchase provided the original is sold within three years, the extra Stamp duty is recouped. Here it is from HMRC under the para

“If you replace your main home.”

https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

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Customer: replied 7 months ago.
Great, thanks. I'll let you know if anything else springs to mind.In the meantime, I'll rate as five stars.
Customer: replied 7 months ago.
Hi. One other query springs to mind from my original message. Is the my mum originally buys and then sells to us for a £1 an option? The advantage of that option is that we avoid the extra stamp duty even if only temporarily because of the refund right. If possible are there other disadvantages to this route? Thanks.

Thank you. That’s very kind.

If she sells the property to you for 1 pound, then it’s your property and you can do what you like with it including booting her out or selling it and buying a yacht with the money.

She could reserve the right to live in the property for life to prevent that but that means that you can’t sell it without an order of the court if she disagrees for it to be sold even if you are going to pay her off. She may like living there!

The other issue of course is that if she sells to you for 1 pound, it’s not actually sail but in reality a gift and if she lives in the property, then it’s a “gift with reservation” which is treated for revenue and tax purposes (and care fees) as though it is not a gift at all and was never made.