Legal property query

[thewave]

Situation as follows

Elderly relative (parent) with property worth £160,000
Equity realease taken out on property £45,000
Credit card debts £25,000

Earnings £10,000 (pensions)
Cannot afford to pay debts.

Can the son, buy the property for £70,000 (to clear the sum of the debts)
The £90,000 be a gift from the estate on death. But as it's a related party transaction, the full asking price at market value would be assumed to be the purchase price, and stamp duty paid thereon.

As the estate is less than the £300,000 IHT threshold, surely there would be no tax implications.

This way the father can stay in the property, my client can obtain a mortgage to clear the debts, and his father pays the interest proportion.

Thoughts please, I'm not a solicitor.

[thewave]

Banks etc

It was a gambling problem.

CAB has said the interest could be frozen, minimum payments set up etc, but after all 'essential' bills he'd be left with £80 a month or something. His children do not, understandably so, wish for him to live like that.

Is what i've suggested possible?

[Piglet]

This stuff is incredibly complicated and you need someone who specialises in this area (not me!).

Some thoughts - the son may also have a CGT issue and at the time of any sale may get stuck with a CGT bill based on the amount he paid for the property and it's real market value.

How will any other children be catered for upon the parents death? Is that likely to cause a problem within the family?

Interesting scenario and I'd be interested in the answers, it's likely that we'll want to buy a half share of my father's property at some point in the future as he won't otherwise be able to afford to stay there and we want to move back to the area.

[thewave]

Piglet said:

This stuff is incredibly complicated and you need someone who specialises in this area (not me!).

Some thoughts - the son may also have a CGT issue and at the time of any sale may get stuck with a CGT bill based on the amount he paid for the property and it's real market value.

How will any other children be catered for upon the parents death? Is that likely to cause a problem within the family?

Interesting scenario and I'd be interested in the answers, it's likely that we'll want to buy a half share of my father's property at some point in the future as he won't otherwise be able to afford to stay there and we want to move back to the area.

Well I (being an accountant) saw it that he could purchase the property for £70,000, by taking on a mortgage of some kind, then £45,000 would clear the equity release (akin to any other mortgage) leaving the father with £25,000 cash as it were, to pay off the remaining unsecured debts.

It's a related party transaction, so the revenue, would want to see that the property was purchased for its market value, not an artificially reduced amount (which would cause CGT implications as you correctly state) therefore he would acquire the property at £160,000, and pay the correct amount of stamp duty. The remainder would be a lifetime gift, and form part (or in this case the whole) of his estate upon death, which, as it's below the £300,000 (current) threshold, would cause not IHT implications.

Seems reasonable to me, although I have no real legal experience whatsoever.

With respect to this chap's sister, I would see it that the sister is put on the title deeds of the property (to deal with the 50/50 estate split) and some agreement drawn up, so that my client doesn't lose what capital he has laid down to ensure the transation goes ahead (she is in no position to go halves).

Like you say, maybe a bit complicated, but to me, seems completely 'doable'

If this doesn't happen, the equity release charge will accumulate to the full value of the property, and the children will get nothing. The father accepts that he didn't fully understand this, and wants help.

[trunnie]

This is something that you really need proper advice on. There are a couple of points about the effect of the transfer that haven't been covered so far (but I'm sure that there are a lot of others). If the father needs to go into a care home then the local authority may seek to challenge the transaction at an undervalue as a gift and lay hands on the property to pay for the care home fees. Similarly if the gambling habit (and the reckless lending policies of certain financial entities for unsecured loans) continues then bankruptcy is possible with the possibility that the trustee may try to set aside the transfer at an undervalue. When you take advice it might be worth thinking about leaving the property with Dad and taking a first charge over it to cover the payment of debts with interest to roll up, whether or not you seek to later claim the interest, and explore whether you can block any subsequent security. It may be that Age Concern or somebody similar can recommend appropriate legal expertise as I suspect that the problem isn't uncommon.

[thewave]

trunnie said:

This is something that you really need proper advice on. There are a couple of points about the effect of the transfer that haven't been covered so far (but I'm sure that there are a lot of others). If the father needs to go into a care home then the local authority may seek to challenge the transaction at an undervalue as a gift and lay hands on the property to pay for the care home fees. Similarly if the gambling habit (and the reckless lending policies of certain financial entities for unsecured loans) continues then bankruptcy is possible with the possibility that the trustee may try to set aside the transfer at an undervalue. When you take advice it might be worth thinking about leaving the property with Dad and taking a first charge over it to cover the payment of debts with interest to roll up, whether or not you seek to later claim the interest, and explore whether you can block any subsequent security. It may be that Age Concern or somebody similar can recommend appropriate legal expertise as I suspect that the problem isn't uncommon.

Cheers.