house buying - tax efficiency
Discussion
My partner's parents are getting on a bit and currently live in a large, draughty, three story barn conversion. So we're contemplating remortgaging our house (on which we currently have almost no mortgage) in order to buy a house outright for her parents.
Her parents can then sell their current house at their lesure and get the best price for it. (They're keen to avoid the stress of a chain.) Once they've sold their house they will buy the new house from us for whatever they get for their old house.
So my question is - what is the most efficient way to buy a house for the padres in law ?
We accept we may have to make up the difference between the value of thier current house and the cost of the new house, but we're keen to avoid unneccesary taxes/expenses.
Thanks in advance.
Chris
Her parents can then sell their current house at their lesure and get the best price for it. (They're keen to avoid the stress of a chain.) Once they've sold their house they will buy the new house from us for whatever they get for their old house.
So my question is - what is the most efficient way to buy a house for the padres in law ?
We accept we may have to make up the difference between the value of thier current house and the cost of the new house, but we're keen to avoid unneccesary taxes/expenses.
Thanks in advance.
Chris
After remortgaging your property to release funds, buy the house in the parents' name (effectively lending them the funds for the purchase) and get your loan back when the parents sell their original property and repay your mortgage. Assuming they sell the original property within 3 years there should be no CGT exposure at all. You can lend the funds interest free if you choose to do so and can afford to, so no messy tax issues on interest received. If they sell the old house for less than the new one costs thereby not being able to repay the whole amount leave that as a loan thus reducing their estate for IHT purposes when the time comes.
Eric, are you looking at the OP's scenario (buying in OP's name then selling to parents)? Even if you are I can't see any BIK or PAYE implications. You are at liberty to buy a house for family to live in, goodness knows how many families do this already. Buying through a company might involve BIK issues etc but that wasn't suggested as far as I can see.
If you are not, by lending the money to your parents you are not gifting the house to them, you are lending them the funds to enable them to buy the house. Just set up a loan agreement when the new house is purchased, interest free or interest bearing depending on the OP's circumstances and needs, leave it flexible so that if sufficient funds are not available when the original house is sold the balance can remain as a loan with the potential IHT benefits.
If you are not, by lending the money to your parents you are not gifting the house to them, you are lending them the funds to enable them to buy the house. Just set up a loan agreement when the new house is purchased, interest free or interest bearing depending on the OP's circumstances and needs, leave it flexible so that if sufficient funds are not available when the original house is sold the balance can remain as a loan with the potential IHT benefits.
I see what you mean.
The new house is in the parents' name. They have borrowed some of the purchase price from the children so there is a matching debt to go with the asset they have acquired.
The only snags I would see would be
a) if the parents never repaid the loan to the children
b) finding a lender who will make a loan to the original borrowers on the basis that the propert was going to be immediately transferred to another party.
I suppose the issue is, on which property the loan is secured, the new house or the children's original house.
The new house is in the parents' name. They have borrowed some of the purchase price from the children so there is a matching debt to go with the asset they have acquired.
The only snags I would see would be
a) if the parents never repaid the loan to the children
b) finding a lender who will make a loan to the original borrowers on the basis that the propert was going to be immediately transferred to another party.
I suppose the issue is, on which property the loan is secured, the new house or the children's original house.
Gentlemen, I can't thank you enough.
We had not thought about making this a loan, which is effectively what it is. This seems to be a much better idea. I'll get an accountant (or a solicitor ?) to set up the loan agreement.
Eric MC -
You are right about them never paying the loan back. Still we know where they live.. !!
We plan to remortgage our current house, which has only a few £k mortgage on it, to raise the money.
I would guess our mortgage company might ask us why we want to remortgage our house, and I hope the honest answer is sufficient for them.
I anticipate a delay of a year or so between buying the new house and selling the current one, so it won't be an instantaneous repayment.
We had not thought about making this a loan, which is effectively what it is. This seems to be a much better idea. I'll get an accountant (or a solicitor ?) to set up the loan agreement.
Eric MC -
You are right about them never paying the loan back. Still we know where they live.. !!
We plan to remortgage our current house, which has only a few £k mortgage on it, to raise the money.
I would guess our mortgage company might ask us why we want to remortgage our house, and I hope the honest answer is sufficient for them.
I anticipate a delay of a year or so between buying the new house and selling the current one, so it won't be an instantaneous repayment.
Just because they do not repay the loan does not make it a gift. Equity release schemes for example provide for repayment only on death.
The element of the loan remaining after using up the proceeds from the sale of the original property can be stated to be repayable after the death of the second parent, to be financed from their estate. This maintains the indebtedness and IHT efficiency. Why pay 40% IHT on what is in reality a loan to parents and which would reduce their estate in the long term!
The element of the loan remaining after using up the proceeds from the sale of the original property can be stated to be repayable after the death of the second parent, to be financed from their estate. This maintains the indebtedness and IHT efficiency. Why pay 40% IHT on what is in reality a loan to parents and which would reduce their estate in the long term!
Nollub said:
Just because they do not repay the loan does not make it a gift. Equity release schemes for example provide for repayment only on death.
The element of the loan remaining after using up the proceeds from the sale of the original property can be stated to be repayable after the death of the second parent, to be financed from their estate. This maintains the indebtedness and IHT efficiency. Why pay 40% IHT on what is in reality a loan to parents and which would reduce their estate in the long term!
That's still a "repayment" though, isn't it. It's just that the repayment hasn't been made in the loan recipient's lifetime.The element of the loan remaining after using up the proceeds from the sale of the original property can be stated to be repayable after the death of the second parent, to be financed from their estate. This maintains the indebtedness and IHT efficiency. Why pay 40% IHT on what is in reality a loan to parents and which would reduce their estate in the long term!
Gassing Station | Finance | Top of Page | What's New | My Stuff