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F E Smith
F E Smith, Advocate
Category: Law
Satisfied Customers: 14119
Experience:  I have been practising for 30 years.
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My parents are moving home and we are considering all the

Customer Question

Hello, my parents are moving home and we are considering all the options available for me to have a small (20%) financial interest in their new property. The reason for this are: 1. To allow them to have more money to enjoy their retirement and 2. To help me back on the UK property ladder
JA: Where are you? It matters because laws vary by location.
Customer: Do you mean location in the UK?
JA: What steps have you taken so far?
Customer: So, We've looked at the option of me getting a small mortgage (they are cash buyers and have no mortgage)
JA: Anything else you want the Lawyer to know before I connect you?
Customer: Just that I want to be able to consider all the implications for both me and my parents before we make any decisions is the lawyer a UK lawyer?
Submitted: 16 days ago.
Category: Law
Expert:  Aston Lawyer replied 16 days ago.

Hi, I'm Al a Conveyancing Solicitor from the West Midlands and am happy to help. If you were to have a Mortgage, your parents would also need to go on the Mortgage as they would be residing at the property. Can you let me know exactly what you all hope to achieve? Al

Customer: replied 16 days ago.
Hello, Yes I've done some research and understand that any mortgage would need to be in all 3 of our names as they would be living there, and also for the title deeds to in in all our names (in the relevant ownership % split). The situation is a bit complicated as I currently live in rented accommodation in the UK but I part own a property abroad. So I have been advised that we would be subject to a higher rate of stamp duty as a result of this, however I've been doing some research )as this seems highly unfair in view of the small % I would have an interest in) and have found the following information out

"Holding financial interest in a property It's unlikely that additional stamp duty will apply if you have inherited a small share (50% or less) in an additional property, or you hold a financial interest in one as part of a partnership or as a beneficiary of a trust. However, there are exceptions, so you should declare any financial interests such as these to your solicitor.

Read more: https://www.which.co.uk/money/mortgages-and-property/home-movers/stamp-duty/buy-to-let-stamp-duty-a26by5t8dmcb - Which?
Customer: replied 16 days ago.
I see I have the option to call you and discuss the situation with you for an additional fee, this is something I would be interested in doing, but would first like you to understand more about our situation, what we ultimately want to achieve and the different ideas I have based on the research I've already done.
It is possible that there may be other options open to my parents and myself, including beneficiary to a trust, gifting, inheriting and tax benefits to my parents, and so it is important for me to speak with someone who has legal expertise in all of these areas, especially if it will only be one phone call.
Would it be possible for me to give you a full overview of things, and for you to let me know if you are able to help with all the different options that may be available to us?
Expert:  Aston Lawyer replied 16 days ago.

I'll opt out and let a fellow expert assist you. Al

Customer: replied 16 days ago.
thank you
Expert:  F E Smith replied 15 days ago.

Good morning. I will assist with your question - be aware this is an email not chat service therefore i maybe delayed in replying.

for background -

when did you buy the property abroad and what type of mortgage?

and what would happen if you require your 20% back in the future?

Customer: replied 15 days ago.
Hello, Many thanks for helping with my question.
The property abroad was purchased by my ex-husband and myself in equal share in 2006, it is in Montenegro and we purchased it with cash so no mortgage.

With regard to my part ownership in my parents property purchase:
My goal is to get back onto the UK property market, with a plan to purchase my own home in the next 2-5 years as I am currently renting. I would like to do this without having to sell the house abroad for the next 3-5 years but my current savings and earnings would not be enough for me to afford my own property or get a large enough mortgage to purchase on my own. So, my hope is that getting a small mortgage with my parents will help me on the first road to achieving this by getting me back on the 'mortgage ladder', and that in the future I can either use funds from the sale of the house abroad to put down a deposit and top it up with a mortgage I can get on my own as a result of already having a mortgage, or that I can have the option to purchase the house that is part owned with my parents in the event that they are no longer able to live there.

My parents goal is 2 part, firstly, they want to help me to get back on the UK property ladder, and as they have the equity in the sale of their current home they can help me to achieve that by putting down a large cash deposit which is then topped up by a small mortgage (which I understand has to be in all 3 names for the purpose of ownership and the title deeds, although ideally we would have liked the mortgage just to be in my name), and, secondly, they would like to have some funds left over from their sale to be able to enjoy their retirement - so by getting a small mortgage (which would be my responsibility to pay, as that would be my share of the property) they would have more funds left. We do appreciate that they could still possibly do this by some form of equity release but that wouldn't achieve the other goals we all want.

There is a 3rd angle to all this, and that is of course, legally, reducing the amount of equity held by my parents in their home for tax benefits.

Whatever option we take it would need to:
a) help us all to reach our desired goals
b) ensure that neither myself or my parents were going to be under risk of incurring higher that normal tax/stamp duty liabilities as a result of me having 20% ownership. For example if I were in the situation in 3-5 years to purchase my own home, and my parents were still living in the property that I was part owner in, would I be liable for the higher rate of stamp duty, and are there any other implications for me.
c) Have legal agreements drawn up to project both my parents and myself in the event of any one of us dying.
d) Have an agreement drawn up to state that my parents can live in the property for as long as the want and that I cannot sale my share (unless it is to them and they are in a position to purchase it).
e) Have an agreement drawn up to state that in the event my parents need to sell, that I am given first option to purchase.

I do appreciate that this is may be a slightly unusual/complex arrangement, but I do want to make sure that my parents are fully secure and can stay in the property for as long as they want to/or are able to, and will be taking steps to ensure I have adequate contingency plans in the event I'm unable to pay the mortgage.

Any help and advise you can give will be very much appreciated as both my legal adviser and conveyancing lawyer are unable to advise fully and have suggested I get a specialist adviser - it may be that you are aware of another way for my parents and I to achieve our goals that we have not considered, or that you can clarify how things would work (the legalities and additional taxes/duties etc) with going down the mortgage route.

Many thanks

Debbie
Expert:  F E Smith replied 14 days ago.

If you already own a property in another country, then you pay an additional rate of stamp duty in the house that you are buying in the UK. Unfair, but that’s how it is: https://www.primelocation.com/discover/buying/guide-to-the-3-stamp-duty-surcharge/#5GCwe4ErVlc2cLVE.97

 

You are also not classed as a first-time buyer.

 

If they don’t need a mortgage, there is no reason why they could not purchase the property in their own name but they already have a house, then once again they pay the additional rate of stamp duty.

Apart from stamp duty, there is no problem doing what you are proposing so I’m not altogether certain what the problem is that you are anticipating.

 

Can I clarify anything else for you?

 

I am 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.

 

You may need to login again to use the rating service. Although it says "rate to finish" it doesn't close the thread and we can still exchange emails.

 

It's important that you use the rating service because that gives me credit.

 

It doesn't just give me a pat on the head! It's what gets me paid!!

 

There is also an experts incentive scheme whereby the more 5 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 points clarifying, I will still reply because the thread does not close.

 

Best wishes.

 

FES

 

Customer: replied 14 days ago.
Hello,and thank you for your reply, however there's still many other questions that I would like to understand apart from the stamp duty aspect and I'm not sure I made the situation fully clear to you. My parents will be subject to the normal amount of stamp duty as the are selling their existing home and purchasing another (so they will not be subject to the additional stamp duty unless I am part of the purchase), however, I found this information about additional stamp duty exemptions, which I wanted to check with you:

'Holding financial interest in a property It's unlikely that additional stamp duty will apply if you have inherited a small share (50% or less) in an additional property, or you hold a financial interest in one as part of a partnership or as a beneficiary of a trust. However, there are exceptions, so you should declare any financial interests such as these to your solicitor.'

Read more: https://www.which.co.uk/money/mortgages-and-property/home-movers/stamp-duty/buy-to-let-stamp-duty-a26by5t8dmcb - Which?

That is the only thing I needed to know about the stamp duty, all the other information I require is to do with any other ways in which I can be party to owning a small % of my parents home, such as being a beneficiary in trust, gifting, inheritance etc and how it would work from a tax, legal and future perspective.

Many thanks
Debbie
Expert:  F E Smith replied 14 days ago.

I’m glad to help.

The link to the Stamp Duty Exemptions from Which magazine doesn’t work I’m afraid.

 

You can always have a secret trust, perfectly legal, whereby your parents hold a share of the property on trust for you and that, registered as a restriction against the property to prevent it being sold or remortgaged without your consent.

 

There is no additional stamp duty for that.

Customer: replied 14 days ago.
Thank you for your clarification with regards to the stamp duty, at least we now know that it is definitely a deal breaker with going down the mortgage route.

With regard to the 'secret' trust - what does it mean that it is a secret trust? (so what is the difference between that and an normal beneficiary trust). Would there be any tax liabilities if the share of the property were to be held in a trust for me?
Also, I would still like to help my parents have more funds to enjoy their retirement, so we have come up with the idea that I could pay them a monthly amount (to be agreed) that would be similar to the amount I would have paid for a mortgage. This amount would be a way of me 'paying' them for the amount of the property left to me in the secret fund..... obviously we would need to draw up a legal agreement to agree on the amount, the payment terms and what would happen if they passed away before I had paid the value of the amount held in the trust for me.
Can you please advise if this would work from a legal perspective, if it would incur any tax liabilities
and what steps we would need to take to put it in place? And would all our names be able to go on the deeds of the property in the relevant ownership spilt?

Many thanks
Debbie
Expert:  F E Smith replied 14 days ago.

The secret trust is only secret because it isn’t registered anywhere. Only you and the owners of the property know about it apart from the restriction.

Secret seems to imply that its clandestine but it’s nothing of the sort it just means there is no legal interest in the property just and equitable financial one.

 

You can have whatever you like in that agreement including what you are talking about. I can see no reason that wouldn’t work. In effect you would be saving money although if your parents are eventually going to shuffle off the mortal coil, you would presumably get all or part of the house anyway.

 

What you also have to consider is what happens if your parents lived to be the age of Methuselah and you have “saved” all this money and you still haven’t got a house because they are living in it.

 

The legal aspects are easy to sort, it’s the practicalities which are problematical.