Buying second home for close family
Discussion
Currently own our own home (small mortgage).
Looking into buying a second house for close-relatives to live in. Age/income means they can’t buy it themselves. Not looking to co-sign a mortgage or anything like that- thinking simpler in the long term for me and mrsT to just buy a second house and let them live there.
There’d be no rent paid to us (none, nothing funny in lieu either, we are not trying to dodge income tax) we just want them to live in a house we own. We would pay council tax - they would just pay the other bills (utilities).
So, convoluted setup aside, can we just get a normal residential mortgage, or is this still falling into the world of regulated btl?
(Sorry mods- I’ve stuck this in the wrong forum I think?)
Looking into buying a second house for close-relatives to live in. Age/income means they can’t buy it themselves. Not looking to co-sign a mortgage or anything like that- thinking simpler in the long term for me and mrsT to just buy a second house and let them live there.
There’d be no rent paid to us (none, nothing funny in lieu either, we are not trying to dodge income tax) we just want them to live in a house we own. We would pay council tax - they would just pay the other bills (utilities).
So, convoluted setup aside, can we just get a normal residential mortgage, or is this still falling into the world of regulated btl?
(Sorry mods- I’ve stuck this in the wrong forum I think?)
Edited by tigger1 on Saturday 6th February 10:32
DO NOT DO THIS.
We did it and of all the mistakes I have ever made this one has bitten us the most. I have several friends who say the same.
They will do things that will seem perfectly reasonable to them but will slowly wind you up, when the market goes up they will say "look how much money you will make" ignoring the fact that if you had a proper tenant you would get rent on top. You will arrive to find they have chopped down the old oak as it shadows the patio. They will have it painted bright blue. They will move in their cousin who has fallen on hard times.
I could go on and on and on......
We did it and of all the mistakes I have ever made this one has bitten us the most. I have several friends who say the same.
They will do things that will seem perfectly reasonable to them but will slowly wind you up, when the market goes up they will say "look how much money you will make" ignoring the fact that if you had a proper tenant you would get rent on top. You will arrive to find they have chopped down the old oak as it shadows the patio. They will have it painted bright blue. They will move in their cousin who has fallen on hard times.
I could go on and on and on......
Cheers for the reality check Dixy - genuinely.
We know it’s a risk - and we’re not doing it as an investment* - if it all goes to s#%t we’ll lose money on a house, but have the peace of mind of parents nearby - with things the way they’ve been recently, being around for them in advancing years is more important than money**.
I’m not interested in BTL as a means to make money instead - can’t be arsed with the hassle(!) and it’s not something that will leave us destitute over the next 10-20 years.
(*although there’s obviously a minute chance that it could work out really well financially
We know it’s a risk - and we’re not doing it as an investment* - if it all goes to s#%t we’ll lose money on a house, but have the peace of mind of parents nearby - with things the way they’ve been recently, being around for them in advancing years is more important than money**.
I’m not interested in BTL as a means to make money instead - can’t be arsed with the hassle(!) and it’s not something that will leave us destitute over the next 10-20 years.
(*although there’s obviously a minute chance that it could work out really well financially
- feel free to bookmark this for 5 years time when I’m tearing my hair out!)
Drezza said:
Just normal mortgage will do... My parents did it for me when I was 19 as I couldn't get a mortgage, l paid rent to them cash and had a lodger, worked well.
I’m sure that can and does work - but there’s no cash in lieu of rent game being played here (or lodgers) - the tax side will need to be absolutely above board, rather than just appearing to be. From reading more it does sound like a second home mortgage is ok - proof will be in the bank shaped pudding.
You must like paying taxes,
At the end of the day BTL is a poor investment for new entrants and once you're looking at B without the TL it's even worse.
- Enhanced Stamp Duty on purchase of second home.
- Enhanced CGT rate payable on sale of second home.
- It may not matter but market value of the "free accommodation" is also an ongoing gift from the owners to the occupiers each year, using up part of your £325k tax free IHT band for the next 7 years.
At the end of the day BTL is a poor investment for new entrants and once you're looking at B without the TL it's even worse.
Would it make more sense to change them a nominal rent? I'm thinking if you need to do anything to the property at some point you could claim tax back on it? When they get old and if their income is limited you may feel the need to spend on maintenance to preserved the value of your investment.
Sorry to have to say this but you need to think about what happens if you and Mrs T divorce, and if one of you or them dies.
Sorry to have to say this but you need to think about what happens if you and Mrs T divorce, and if one of you or them dies.
rockin said:
You must like paying taxes,
At the end of the day BTL is a poor investment for new entrants and once you're looking at B without the TL it's even worse.
Tell me about ‘enhanced CGT’ then?- Enhanced Stamp Duty on purchase of second home.
- Enhanced CGT rate payable on sale of second home.
- It may not matter but market value of the "free accommodation" is also an ongoing gift from the owners to the occupiers each year, using up part of your £325k tax free IHT band for the next 7 years.
At the end of the day BTL is a poor investment for new entrants and once you're looking at B without the TL it's even worse.
bennno said:
Tell me about ‘enhanced CGT’ then?
"There is a higher rate of CGT to pay on the gain you make on a property sale than there is on other assets. If you are a basic rate taxpayer, you will pay 18% on any gain you make on selling a second property. If you are a higher or additional rate taxpayer, you will pay 28%.With other assets, the basic rate of CGT is 10%, and the higher rate is 20%."
https://www.gov.uk/capital-gains-tax/rates
And it has to be paid within 30 days of the sale, not at the end of the tax year.
rockin said:
You must like paying taxes,
[and lots more sensible stuff]
Cheers Steve. [and lots more sensible stuff]
It’s not that bad, but yes, all those are true. CGT only an issue if there’s a big increase in value (ok, not that big). Wills are all in order, all possible scenarios of who dies first / divorce have been discussed etc and we are happy with that risk.
This decision is definitely not a financially motivated one 😂 -
tigger1 said:
Cheers Steve.
It’s not that bad, but yes, all those are true. CGT only an issue if there’s a big increase in value (ok, not that big). Wills are all in order, all possible scenarios of who dies first / divorce have been discussed etc and we are happy with that risk.
This decision is definitely not a financially motivated one ?? -
So your second home goes up in value by £100K. As a higher rate tax payer, you pay CGT at 28%. You still make £72K on the transaction, which is more than you will get leaving the money in the bank. Am I missing something?It’s not that bad, but yes, all those are true. CGT only an issue if there’s a big increase in value (ok, not that big). Wills are all in order, all possible scenarios of who dies first / divorce have been discussed etc and we are happy with that risk.
This decision is definitely not a financially motivated one ?? -
Have you ruled out buying a new house which can accommodate them at the same time? Annex or whatever.
Reason I say this is that if it’s elderly parents a house of their own may become unmanageable sooner rather than later. You will possibly be on the hook for gardening and any simple maintenance jobs etc.
Reason I say this is that if it’s elderly parents a house of their own may become unmanageable sooner rather than later. You will possibly be on the hook for gardening and any simple maintenance jobs etc.
bristolracer said:
Sell yours, buy a place with an annex?
Gets around most of the issues raised other than them outliving you.
This is what we are considering. My Mrs already owns her parents houses (no rent paid) but it’s becoming obvious they won’t manage for much longer. FIL recently fell so cant get upstairs, MIL who is now 88 is away with the fairy’s most of the time. They only live a mile away but it’s still a hassle having to go around every five minutes. I’m thinking a house with a double garage, convert the garage and they can live in there Gets around most of the issues raised other than them outliving you.
BertBert said:
With your wills, what have you decided to do if you both die? Are you gifting the house to the people who live in it? Will your estate be able to pay IHT without selling that house?
For us, possibly a life interest trust, so if we die they can keep living there until they choose not to. We own our house bar a very small mortgage - and both of us have reasonable pension pots / life cover (too much life cover if I’m honest) etc so IHT in our estate wouldn’t be a problem if we shuffled off tomorrow. Life cover is all in trust, so outside estate (apologies if I get the terms wrong - Ianal) - and nil rate band would cover most of the two houses’ value ( I think!?). Bloody hell - I’m only (very very) “late thirties” life isn’t meant to be this complicated!
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