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Home ownership has just caused a huge rift in my family


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My aunt, a single parent with 3 kids, works full time as a teacher at a private school. She earns 40k a year. Historically she rented with an alcoholic ex-husband. When they eventually split my grandparents bought her a house on a buy to let so she had somewhere to live and rented it to her at cost so she only had to pay the interest on the mortgage. 

It's been a few years now and she has finally divorced her husband, and has the idea of home ownership in her head. She wants to sell where she currently lives, take all of the equity and buy a detached house on her own for herself and her kids. 

Well the issue is capital gains tax. I'm a chartered accountant myself, 2 exams away from being a chartered tax advisor. It's fair to say I know a bit about capital gains tax, I deal with it regularly. I did a small rough calculation on how much tax she would have to pay (because my grandparents own the property) and what would be left over to buy a property by herself - assuming my grandparents were willing to just gift her all of the deposit and the equity leftover after tax.

I then explained she will only get 4.5x her salary on a mortgage, and combine that with all of the equity she could afford a house that costs 300k, which is 200k short of her dream home of 500k.

She has just accused me of trying to hold her back in her life, I'm 'dividing the family', I'm lying about the tax and I don't know what I'm talking about. Her current boyfriend suggested she talk to a financial advisor (like he is going to know anything about tax). I took great offense at her attack on my character, and argued my case. It just didn't seem to get through. She stormed off crying. 

Tldr; HPI breaks down families 

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10 hours ago, MuayThai18 said:

My aunt, a single parent with 3 kids, works full time as a teacher at a private school. She earns 40k a year. Historically she rented with an alcoholic ex-husband. When they eventually split my grandparents bought her a house on a buy to let so she had somewhere to live and rented it to her at cost so she only had to pay the interest on the mortgage. 

It's been a few years now and she has finally divorced her husband, and has the idea of home ownership in her head. She wants to sell where she currently lives, take all of the equity and buy a detached house on her own for herself and her kids. 

Well the issue is capital gains tax. I'm a chartered accountant myself, 2 exams away from being a chartered tax advisor. It's fair to say I know a bit about capital gains tax, I deal with it regularly. I did a small rough calculation on how much tax she would have to pay (because my grandparents own the property) and what would be left over to buy a property by herself - assuming my grandparents were willing to just gift her all of the deposit and the equity leftover after tax.

I then explained she will only get 4.5x her salary on a mortgage, and combine that with all of the equity she could afford a house that costs 300k, which is 200k short of her dream home of 500k.

She has just accused me of trying to hold her back in her life, I'm 'dividing the family', I'm lying about the tax and I don't know what I'm talking about. Her current boyfriend suggested she talk to a financial advisor (like he is going to know anything about tax). I took great offense at her attack on my character, and argued my case. It just didn't seem to get through. She stormed off crying. 

Tldr; HPI breaks down families 

Inheritances ... Divorce... Money... Family... Houses... Always cause trouble. I'd keep out of it if you can!

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I used to give really good advice, which would of led to a really happy for filling life to my family members

and I used to point out how the decisions they were making were really terrible and how they would work out

eventually I realised that although I was 100% correct, and they turned their lives to shit with poor decisions, and it all planned out just like I said it would, that people have to make their own mistakes, even if later on they wished they didn’t 

some people are just feckless for life, they lack the ability to take on board opinions, they think they are right, they want sooo hard to be right, they can’t stand to even admit they make poor decisions 

it will all pan out as you say it will, it always does, you have critical thinking. 

problem is that you can’t win, if you support their shit ideas your openly encouraging them to jump into the fires of rack and ruin, if you say nothing you are not supportive, if you disagree you only add fire to them doing their own poor decision to ‘prove you wrong’ 

in the end I choose to half arsedly fain encouragement. There is just no helping some people. You can’t influence them. You never will. The have to make their own poor choices. they don’t respect your opinion. 
 

you will always be the bad guy. just don’t get involved. 

Their punishment for not listening, is their own decisions, and moving forward not even getting good advice anymore. 

leave them to it. 

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7 minutes ago, “Nasty Piece of work” said:

I (incorrectly?) thought it was 4X - am I wrong?  It wouldn’t surprise.

You're both wrong really. There are guides and frameworks that mortgage companies work to such as 3X, 4X, 5X, etc but then what they'll actually lend is based on what you can afford which is usually less. 

Edited by micawber
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Strange post.

Smells likes an elaborate trolling.

When they eventually split my grandparents bought her a house on a buy to let so she had somewhere to live and rented it to her at cost so she only had to pay the interest on the mortgage. 

Thats how *all* IO BTL works. Theres very little gap in mortgage and rent.

It's been a few years now and she has finally divorced her husband, and has the idea of home ownership in her head. She wants to sell where she currently lives, take all of the equity and buy a detached house on her own for herself and her kids. 

Its not her house. Depending where the house is there might be little to no equity. Which is a moot point as its your GPs. money/tax liability.

And most BTL dont  tend to be detached houses.

Well the issue is capital gains tax. I'm a chartered accountant myself, 2 exams away from being a chartered tax advisor. It's fair to say I know a bit about capital gains tax, I deal with it regularly. I did a small rough calculation on how much tax she would have to pay (because my grandparents own the property) and what would be left over to buy a property by herself - assuming my grandparents were willing to just gift her all of the deposit and the equity leftover after tax.

Congrats. But as a CA, slowly becoming a CTA, you, more than everyone else, would know that its your GP who are liable for the tax. They pay it. They might choose to gift her the equity but,  ,as you mentioned above. shes only been paying the interest on the mortgage, so theres prob going to be little in the way of equity.

I then explained she will only get 4.5x her salary on a mortgage, and combine that with all of the equity she could afford a house that costs 300k, which is 200k short of her dream home of 500k.

Again, GP sell the BTL, they pay the CGT on it. They might choose to gift whats left to her. They need to seek legal advice on this before they start down that road. She might also have to decalre where she got the deposit from.

Why cant she stay in GPs house?

She can go to a mortgage advisor for advice on 4.5x.

The max she  could borrow is ~ 4.5 x 40 = ~200k. However if shes got school age kids and odds and sods expensive will find the amount she can borrow drops like a brick.

For 3 kids, single parents doing job, Id reckon the costs would knock about 15k off that salary, leaving ~4.5 x 25k max, about ~120k mortgage.

Then there's age. If shes ~50 she'll find limitations on mortgage term, increasing monthly repayments.

She has just accused me of trying to hold her back in her life, I'm 'dividing the family', I'm lying about the tax and I don't know what I'm talking about. Her current boyfriend suggested she talk to a financial advisor (like he is going to know anything about tax). I took great offense at her attack on my character, and argued my case. It just didn't seem to get through. She stormed off crying. 

So ..... she shacks with a drunk, has 3 kids by him then accuses you of holdign back her life with a ~10 minute conversation on MMR.

Teacher-sh sense of proportion there, I see.

Still dont know want the fuss is. I know teachers are very hard work.

My simple, unemotional advice is there are BoE limit on amounts that people can borrow -  an effective max of 4.5 income minus any recurring spend.

If she  gets the knock back from a bank then she may have some 'luck' with a mortgage advisor. However, MA are not some magical creatures i.e. they are not the pro liars they were before MMR. Equally, a MA will only help her find a more boutique mortgage which tends to be much more expensive.

And - the more she applies for credit- and gets rejected, the worse her credit rating will get, reducing the banks who'll lend to her.


 

 

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The same message given by a family member, you,  is usually ignored whereas somebody from outside says the same, it's considered true.

 

She knows your expertise, if she chooses to ignore, her fault. She's a grown woman, let her carry on, and one more thing, money and family never mix. 

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People make their own mistakes....they might listen, but do it anyway, they might not listen or be resentful of the advise, they might even think you are jealous.

When/if it all goes wrong, you might still be looked upon as the problem..... 'well it's alright for you'.

If it turns out well, will be 'glad didn't listen to you'.

If not responsive to words of good advice, best to stay out of it and let the damage be done.;)

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41 minutes ago, micawber said:

Did she ask for your input?

I deal with my grandparents' tax affairs. I originally did a rough calculation just to give an idea of the CGT position, nothing more nothing less. From this info I just explained affordability. I wish I hadn't got involved in the first place but at the end of the day my grandparents necks are on the line for the tax, not hers

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33 minutes ago, micawber said:

You're both wrong really. There are guides and frameworks that mortgage companies work to such as 3X, 4X, 5X, etc but then what they'll actually lend is based on what you can afford which is usually less. 

The framework allows banks to lend up to 4.5 for ~3/4 of their lending.

A bank can choose to lend over 4.5 for that last 1/4 - 10x 20x.

Few do, as the fall out for a bank loan outside of MMR is pretty harsh.

 

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Erm....She doesn't have a bean to pay of tax, right now at least..

The grandparents will incur CGT on the value above and beyond what they paid for the house.

The grandparents gift her the money, and the only tax she *may* incur is a liability under the 7 year rule for IHT should either of them pass away and their estate is over the IHT threshold.

I think you should re-do your exams. I don't blame her for telling you you were 'lying about the tax' because you were wrong! 

You may well be right on the mortgage, but all credibility was lost already.

Edited by Frugal Git
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I'd stop actively having any involvement with her on account of the way she spoke to you. You'll meet her anyway through family, just be passive and polite, birthday cards etc. It's up to her to rebuild the relationship. Spend your time and effort on someone who's worth it.

Yes houses money etc split families.

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15 minutes ago, Frugal Git said:

Erm....She doesn't have a bean to pay of tax, right now at least..

The grandparents will incur CGT on whatevers left after clearing the mortgage above and beyond what they paid for the house.

The grandparents gift her the money, and the only tax she *may* incur is a liability under the 7 year rule for IHT should either of them pass away and their estate is over the IHT threshold.

I think you should re-do your exams. I don't blame her for telling you you were 'lying about the tax' because you were wrong! 

You may well be right on the mortgage, but all credibility was lost already.

????

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Just now, MuayThai18 said:

????

Either your post is very badly written, or you don't know what you're talking about when it comes to her CGT liability. It's all the grandparents responsibility.

She has no tax liability whatsoever on what THEY gift to her from what's left after they sell the property, clear the mortgage and pay any CGT, apart from a possible IHT issue under the seven year rule if they pass away.

 

 

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Just now, Frugal Git said:

Either your post is very badly written, or you don't know what you're talking about when it comes to her CGT liability. It's all the grandparents responsibility.

She has no tax liability whatsoever on what THEY gift to her from what's left after they sell the property, clear the mortgage and pay any CGT, apart from a possible IHT issue under the seven year rule if they pass away.

 

 

I think the OP's point is that said sister is counting on all the equity in the house going towards her new purchase, when actually there'll be less than she thinks available.

And the OP has merely pointed out that the sister won't be able to afford what she hopes to as a result.

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1 minute ago, Si1 said:

I think the OP's point is that said sister is counting on all the equity in the house going towards her new purchase, when actually there'll be less than she thinks available.

And the OP has merely pointed out that the sister won't be able to afford what she hopes to as a result.

Ah - That's fair enough then. Its worded as if she has a liability. I guess she really thinks she owns the current house, de facto.

7 minutes ago, MuayThai18 said:

????

Apologies. I didn't interpret the post correctly. She sounds very entitled, to use a mumsnet phrase.

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Just now, Frugal Git said:

Ah - That's fair enough then. Its worded as if she has a liability. I guess she really thinks she owns the current house, de facto.

Apologies. I didn't interpret the post correctly. She sounds very entitled, to use a mumsnet phrase.

No worries dudes. My counseling invoice is in the post.

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13 hours ago, MuayThai18 said:

My aunt, a single parent with 3 kids, works full time as a teacher at a private school. She earns 40k a year. Historically she rented with an alcoholic ex-husband. When they eventually split my grandparents bought her a house on a buy to let so she had somewhere to live and rented it to her at cost so she only had to pay the interest on the mortgage. 

It's been a few years now and she has finally divorced her husband, and has the idea of home ownership in her head. She wants to sell where she currently lives, take all of the equity and buy a detached house on her own for herself and her kids. 

Well the issue is capital gains tax. I'm a chartered accountant myself, 2 exams away from being a chartered tax advisor. It's fair to say I know a bit about capital gains tax, I deal with it regularly. I did a small rough calculation on how much tax she would have to pay (because my grandparents own the property) and what would be left over to buy a property by herself - assuming my grandparents were willing to just gift her all of the deposit and the equity leftover after tax.

I then explained she will only get 4.5x her salary on a mortgage, and combine that with all of the equity she could afford a house that costs 300k, which is 200k short of her dream home of 500k.

She has just accused me of trying to hold her back in her life, I'm 'dividing the family', I'm lying about the tax and I don't know what I'm talking about. Her current boyfriend suggested she talk to a financial advisor (like he is going to know anything about tax). I took great offense at her attack on my character, and argued my case. It just didn't seem to get through. She stormed off crying. 

Tldr; HPI breaks down families 

Yikes, buying a £500k house on a £40k salary!

I was anxious spending £400k 18 years ago on my second home on a £110k salary with a wife on £70k and at least £60k of equity.

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2 hours ago, jiltedjen said:

I used to give really good advice, which would of led to a really happy for filling life to my family members

and I used to point out how the decisions they were making were really terrible and how they would work out

eventually I realised that although I was 100% correct, and they turned their lives to shit with poor decisions, and it all planned out just like I said it would, that people have to make their own mistakes, even if later on they wished they didn’t 

some people are just feckless for life, they lack the ability to take on board opinions, they think they are right, they want sooo hard to be right, they can’t stand to even admit they make poor decisions 

it will all pan out as you say it will, it always does, you have critical thinking. 

problem is that you can’t win, if you support their shit ideas your openly encouraging them to jump into the fires of rack and ruin, if you say nothing you are not supportive, if you disagree you only add fire to them doing their own poor decision to ‘prove you wrong’ 

in the end I choose to half arsedly fain encouragement. There is just no helping some people. You can’t influence them. You never will. The have to make their own poor choices. they don’t respect your opinion. 
 

you will always be the bad guy. just don’t get involved. 

Their punishment for not listening, is their own decisions, and moving forward not even getting good advice anymore. 

leave them to it. 

That is exactly how it is, well written and excellent advice. I've found exactly the same...

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1 hour ago, Frugal Git said:

Erm....She doesn't have a bean to pay of tax, right now at least..

The grandparents will incur CGT on the value above and beyond what they paid for the house.

The grandparents gift her the money, and the only tax she *may* incur is a liability under the 7 year rule for IHT should either of them pass away and their estate is over the IHT threshold.

I think you should re-do your exams. I don't blame her for telling you you were 'lying about the tax' because you were wrong! 

You may well be right on the mortgage, but all credibility was lost already.

Assuming that the GP's are married, can IHT not be delayed until the second death?

My understanding is that the surviving spouse can inherit everything free of IHT on the first death, assuming of course that the will of the deceased spouse specifies this..

Then on the eventual second death twice the individual IHT allowance is exempted from IHT.

BTW, this doubled exemption can be up to £1M if a 'family house' worth at least £350,000 is included in the estate and bequeathed to one or more direct descendants.

 

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35 minutes ago, Mikhail Liebenstein said:

Yikes, buying a £500k house on a £40k salary!

I was anxious spending £400k 18 years ago on my second home on a £110k salary with a wife on £70k and at least £60k of equity.

sounds like 18 years ago was the pinnacle, as you would need to earn 180k just to keep up with inflation ! but more than likely have a much more stressful demanding job on top. 

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  • 415 Brexit, House prices and Summer 2020

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