Question over a house purchase
Discussion
Jack and Jane get married. Jane's mum Sarah has a spare house with no mortgage on it, so they move in that with their kids. They pay a rent of sorts to Sarah.
They now want to buy the house, but don't want to get a mortgage and also would like to reduce their tax liability. They agree with Sarah to pay her the equivalent of the monthly mortgage payment each month, and then in 10 years' time when they've paid what the house is worth now, Sarah transfers the house over to them. As such, there's no CGT to pay for Sarah and no stamp duty for Jack and Jane.
Thoughts?
They now want to buy the house, but don't want to get a mortgage and also would like to reduce their tax liability. They agree with Sarah to pay her the equivalent of the monthly mortgage payment each month, and then in 10 years' time when they've paid what the house is worth now, Sarah transfers the house over to them. As such, there's no CGT to pay for Sarah and no stamp duty for Jack and Jane.
Thoughts?
In no particular order:
1) Sarah will have to pay CGT when she transfers the house over
2) Sarah will have to pay income tax on the rental payments
3) What is to stop Sarah from getting cold feet about the whole thing and giving the house to the local cat's home in five years time?
Tax-wise, you can avoid (2) but not (1) by transferring the house over now, although the CGT liability is likely to be less now than it will be in 10 years time. Of course in that case the flip of (3) is also true: what is to stop Jack & Jane from saying 'thanks a lot' and stopping payments.
There's no reason it can't work, but you'd have to be very trusting of a continued good relationship and also work through the permutations (what happens if for example Jack & Jane split up, or one of them dies, or they can't meet the payments, or, or, or ...)
1) Sarah will have to pay CGT when she transfers the house over
2) Sarah will have to pay income tax on the rental payments
3) What is to stop Sarah from getting cold feet about the whole thing and giving the house to the local cat's home in five years time?
Tax-wise, you can avoid (2) but not (1) by transferring the house over now, although the CGT liability is likely to be less now than it will be in 10 years time. Of course in that case the flip of (3) is also true: what is to stop Jack & Jane from saying 'thanks a lot' and stopping payments.
There's no reason it can't work, but you'd have to be very trusting of a continued good relationship and also work through the permutations (what happens if for example Jack & Jane split up, or one of them dies, or they can't meet the payments, or, or, or ...)
These crazy plans always seem like a good idea after 3 pints.
But when the cold light of day / peoples selfish or greedy tendencies come out in due course they'll all turn to s##t and the rows / homelessness / court cases will all start unless you take proper advice and get agreements drawn up, and then hopefully you'll realise what a bad idea it was in the first place and not bother!
But when the cold light of day / peoples selfish or greedy tendencies come out in due course they'll all turn to s##t and the rows / homelessness / court cases will all start unless you take proper advice and get agreements drawn up, and then hopefully you'll realise what a bad idea it was in the first place and not bother!
Edited by mikeN54 on Monday 7th March 15:57
Ekona said:
Jack and Jane get married. Jane's mum Sarah has a spare house with no mortgage on it, so they move in that with their kids. They pay a rent of sorts to Sarah.
They now want to buy the house, but don't want to get a mortgage and also would like to reduce their tax liability. They agree with Sarah to pay her the equivalent of the monthly mortgage payment each month, and then in 10 years' time when they've paid what the house is worth now, Sarah transfers the house over to them. As such, there's no CGT to pay for Sarah and no stamp duty for Jack and Jane.
Thoughts?
Jack and Jane are Sarah's tenants right up until Sarah transfers the house to their ownership - with all the tax implications and responsibilities for Sarah that being a landlord carries.They now want to buy the house, but don't want to get a mortgage and also would like to reduce their tax liability. They agree with Sarah to pay her the equivalent of the monthly mortgage payment each month, and then in 10 years' time when they've paid what the house is worth now, Sarah transfers the house over to them. As such, there's no CGT to pay for Sarah and no stamp duty for Jack and Jane.
Thoughts?
Whatever agreement they may have with future promises would need to be written into some kind of contract to carry any legal weight.
If Sarah goes bankrupt the day before signing that transfer form, the house is still part of her assets, and there could be IHT or deprivation of assets issues if Sarah dies after the transfer.
A more sensible way to do it would be for Sarah to sell Jack and Jane the house now, with payment via a personal loan to be repaid over the next ten years.
There are lots of tax implications here, not to mention family law ones.
There are was around it but nothing that is 100% bullet proof or that does not have implications you need to be aware of.
Go see a proper solicitor to discuss - factory shop will not have a clue and there are at least three different areas of law that need consideration, most of which have been hinted at above.
In short - your plan will not work and is not the best way to do this. There are ways to do this but they are not likely to hit all the notes that you want, just most of them, and you have to chose which you can live with and which you can't. You need matter specific legal advice from someone who knows what they are doing, not just "A Conveyancer".
There are was around it but nothing that is 100% bullet proof or that does not have implications you need to be aware of.
Go see a proper solicitor to discuss - factory shop will not have a clue and there are at least three different areas of law that need consideration, most of which have been hinted at above.
In short - your plan will not work and is not the best way to do this. There are ways to do this but they are not likely to hit all the notes that you want, just most of them, and you have to chose which you can live with and which you can't. You need matter specific legal advice from someone who knows what they are doing, not just "A Conveyancer".
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