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b_real

Buying off your parents

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Having some family issues & hoping for some advice. Parents own their house with 40k left on the mortgage and 3 years to pay it off before repo. They separated and dad moved out about 10 years ago and is in supported living arrangements due to illness. Mum still lives in the house but is being moved into a care home in the next few weeks because she's ill and frail. They've had the house for sale for years, but its been poorly advertised and it is in a right state (basically my mum has been smoking 40 a day in it for about 20 years, it really stinks). 

It's on the market for around £125k. They had an offer a few weeks ago for £103k which my dad refused. The buyer cited high renovation costs to support his low offer. So basically, the house won't sell because its a shithole and and after looking at it myself I reckon it needs about £16k worth of work to make it either rentable or sellable (for new kitchen, bathroom, carpets and re-plastering walls & ceilings throughout to get rid of smoke). 

As my parents are both on benefits due to poor health, if they sell the house and their individual profit from the house exceeds £23k each, then that money will need to go towards paying for their ongoing care needs (I think, this is tbc, they're in N.Ireland ... where everything is complicated). 

So this all represents a possible opportunity for me. I could buy the house off them at below market valuation at a figure that doesn't breach their benefits payements (so for say £85k (giving them £22.5k profit each), renovate it and either rent it out or sell it. My questions are:

Is there anything to watch out for from a legal perspective with this approach of buying property cheap from your parents at well below market rates? Would any of that be seen as inheritance and therefore subject to tax?  

Would having a buy to let mortgage for my parents house affect my ability to get another mortgage for my own house? (I'm currently a 40yo who's been renting for over 10 years now, and would hope to buy my own place in the next year or two). 

Sorry if all that is a bit of overshare but I'm in a bit of a state about it all and just want to make sure that i've got all angles covered off before I put any offer to my parents. My parents have nothing to pass on to me and they feel pretty shit about that, so this is an opportunity for all of us ... I think. Any advice welcome.

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On 25/01/2018 at 2:53 PM, b_real said:

Is there anything to watch out for from a legal perspective with this approach of buying property cheap from your parents at well below market rates? Would any of that be seen as inheritance and therefore subject to tax?  

I'm not qualified to give advice, so this is information not advice:

In the eyes of HMRC a gift is what they say it is and if you disagree then it's up to you to demonstrate to them that it's not.  They do provide some information on what they consider to be a gift.

Selling a house on the open market or obtaining a professional valuation (not an EA's) are ways to demonstrate that the house was sold for a market price.  If HMRC decide that a house was sold below market price, that the sale was in part a gift, the vendor then dies so the gift becomes an inheritance and the buyer cannot demonstrate otherwise then the buyer may well be liable for inheritance tax.

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Inheritance tax is not an issue (on face value) so from that aspect it wouldn't matter if the transaction was at below market value.

Given that there are health issues there is a possibility that if either parent is being assessed as to whether they can afford care fees then is there an issue of "deliberate deprivation of assets" by selling at under value.  Given the relatively small amounts involved and as the plan is for the property to be sold at close to the market value (£103k arguably being that at present) then it would be far from a sure thing for an authority to go to court to win an argument of this nature.  However, perhaps if the sale price was closer to £100k (not looking quite so deliberate in bringing them below the thresholds) then you may be on safer ground again.  Of course, that may mean some of that money going in care fees ... if they didn't find something else which they would like to spend some money on, such as some nice moving in presents for your new home?!

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I believe this would seen as benefits fraud if sold at below market value, also care costs are being avoided. No doubt a prison term will result if caught. As an offer of £103k has been rejected so the sale price would need to be higher than that to avoid potential prosecution.

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Thanks for the replies folks, that's given me a few directions to continue researching. It appears that this approach oscillates wildly between prison and no harm done. To be clear, I'm not trying to commit fraud, I'm just trying to make the best of a shit situation. 

I found this piece if anyone reading this is interested

https://www.saga.co.uk/magazine/money/personal-finance/care/how-to-avoid-care-home-fees

Quote

You may be tempted to put your house into trust in order to avoid care home fees, but don't be too hasty.

By putting your house into trust and naming someone (usually your children) as the Trustees, you no longer own your house, and should you have to go into care, your property assets would no longer be calculated as part of means testing - however, although that's the logic behind putting your house into trust, in practice it can be a bit more of a minefield.

On the surface, it might seem like the perfect way to protect your children's inheritance, but local authorities are increasingly wise to these type of schemes, with teams in place to ensure residents are not using them to get out of paying rising care costs.

Not quite the approach I'm looking to do anyway, but worth pointing it out to rule it out. 

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3 hours ago, Fatmanfilms said:

As an offer of £103k has been rejected so the sale price would need to be higher than that to avoid potential prosecution.

I can't see how this is relevant. Any vendor has the right to sell to a buyer even if the price is lower. Just because I'm family shouldn't make any difference. 

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Move into the house, renovate it, then sell it at market rates, taking your share of the sale prices. Could be as high as 40% of the market value if its only worth 103k on the open market.

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  • 406 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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