Gifting property that is mortgaged

[PV7998]

I guess the answer to this is to ask a solicitor specialising in IHT and/or the mortgage company, but I thought I'd ask on here to get some ideas before I speak to them, so here goes.....

I have a buy to let property that has a buy to let interest only mortgage on it that amounts to 60% of its value.

Can I gift the 40% to my children as a way of mitigating IHT?

Children and me would all pay tax proportionately on the rental income and the mortgage would continue to be paid from the rental income.

This seems to be too simple to be possible without pitfalls so I'd be happy to happy to hear from anyone with any expertise or experience.

[anonymous-user]

No.

You personally are in contract with the bank for the mortgage loan. You do not have any ability to dispose of the property (sale, gift or otherwise) without the bank's full agreement and involvement. AFAIK they will only play ball if their mortgage is repaid.

You probably need to contact Sarnie for a definitive answer. My belief is that your kids would need to be able to get a mortgage on the property themselves - then, when you get to completion of the gift, their mortgage is drawn down, the money is paid to you, you redeem your mortgage and the property is transferred to the kids subject to their mortgage. All of this is managed though a solicitor/conveyancer who ensures the a correct outcome for everyone.

[PV7998]

Thanks...............I thought that might be the case

Getting the kids to get a BTL mortgage may not be so easy

[Caddyshack]

I believe that it may be possible to explore the equitable interest but would need to check with someone. Obviously it is possible to have a second charge over the equity so it may be possible for the equity to be used, I am sure I have heard of that being done before.

It may also be possible to incorporate the property and convert to ltd co buy to let with the children or look to add them As extra borrowers before you eventually come off. some buy to let lenders allow 4 applicants on the mortgage, not an immediate solution but a step in right direction.

[Killer2005]

PV7998 said:

Thanks...............I thought that might be the case

Getting the kids to get a BTL mortgage may not be so easy

Have you considered a transfer of equity to add them onto your current mortgage? They would still need to meet some parts of lending policy ie credit score/adverse credit.