The most efficient way for Parent to transfer 2nd home

[steve00100]

Hi my mum bought a house for my sister and her husband - as they could not get mortgage themselves -which she gave to them on a non-commercial let basis. The property's worth about 190k. Her Husbands parents have given them a gift of 50k. The mortgage on the property is interest only; to switch it over to a traditional payment one, the fees are worth about 12k to do so.

My question is, what would be the most ideal method for my Sister to get the house under her own name, providing the mortgage can be switched, in so far they won't be any early or later, Income Tax/IHT/CGT implications for those concerned. Would it just be a lot simpler for my mum to sell the house and gift the original deposit fee over to her?

Thankyou

[maths]

By

which she gave to them on a non-commercial let basis.

do you mean that your mother owns the property and has let it to your sister/husband ie she did not gift the beneficial interest in the property at the date of purchase to your sister/husband?

[steve00100]

Correct, my mum purchased the property; my sister and her husband simply cover the monthly mortgage payments.

[pqtaxation]

...... Her husband’s parents have given them a gift of 50k.

The mortgage on the property is interest only; to switch it over to a traditional payment one, the fees are worth about 12k to do so.

My question is, what would be the most ideal method ..... Would it just be a lot simpler for my mum to sell the house and gift the original deposit fee over to her?

There does not appear to be much specific taxation content to your query; more in the area of personal and mortgage finances.

Without your giving more details of the financial circumstances of your Mum and sister/husband (s/h) it is not possible IMO to comment helpfully on your query. However, it’s almost inconceivable that the best option financially would be for Mum to sell the house, gift her deposit/equity to your sister, s/h to rent for a time and thereafter in the (near?) future buy another house (unless of course they really hate the current house) when they can afford to do so because of all the on-off costs involved in buying, selling and financing a house.

When Mum bought the house for s/h to live in and took out the mortgage what was her thinking about how ownership of the house would over time transfer to s/h? Has that thinking changed or have Mum’s or s/h’s circumstances changed? Or was there no such thinking about s/h becoming the owners over time.

You say the property is currently worth about £190k. When was it purchased, at what cost, how was it paid for and what was/is size of interest only mortgage? Does s/h currently old the £50k gift from husband’s parents and, if so, why can’t that gift be used to (at least partially) repay Mum with her remaining guarantor of the mortgage?

The “fees” of £12k to “switch” from interest only mortgage to a repayment one do look high – can you explain how they are made up?. And why is it necessary to have a repayment mortgage initially?

[steve00100]

Hi, Basically mum did not think exactly how the house would eventually be transferred over to my s/h; at the time they were enable to get a mortgage and needed a place to stay for the long term; so mum brought the house. The reason for the 12k switching fee is that a small portion of the existing mortgage has to be paid to switch to a repayment plan.

Sorry the property was purchased for around 245k; mortgage being 192k and currently market value for the property remains around the same as purchase price of 245k; showing no depreciation. It's necessary to change to a repayment plan because currently only the interest is being paid as it was purchased with an interest only mortgage. My s/h intention is too fully own a property freehold in future. They can't use the 50k gift money from husbands parents to repay mum and mum remaining guarantor because the husbands parents would not approve of this arrangement.

One idea is for them to try get a mortgage using the gift money as deposit, purchase a new property and then put mum's house on rent and then to use the rent money for mum's house (with mums consent) to pay off the mortgage for the let property and then one day move back in.

The current set up is not ideal because the money they pay to mum covering the mortgage payments is nothing short of renting and they not making any progress getting onto the property ladder, and if mum passes away, then it could complicate things further.

[pqtaxation]

Basically mum did not think exactly how the house would eventually be transferred over to my s/h…..

..property was purchased for around 245k; mortgage being 192k

s/h … can't use the 50k gift money from husband's parents to repay mum

It's necessary to change to a repayment plan because currently only the interest is being paid as it was purchased with an interest only mortgage

One idea is for them to try get a mortgage using the gift money as deposit, purchase a new property and then put mum's house on rent and then to use the rent money for mum's house (with mums consent) to pay off the mortgage for the let property and then one day move back in.

The current set up is not ideal because the money they pay to mum covering the mortgage payments is nothing short of renting and they (are) not making any progress getting onto the property ladder, and if mum passes away, then it could complicate things further.

So in summary you say: Mum has/subscribed about £50k equity (= 245 value/cost -192 level mortgage) in house, s/h hold £50k cash gift from h’s parents, s/h can afford an interest-only mortgage payment (as they pay that to Mum currently) which mortgage has a £12k early termination fee (which is about 6.25% of £192k so I’d question that).

Given the history on thinking (or rather lack of) and the uncertainty if Mum dies, I’d suggest Mum and s/h (and possibly h’s parents who gifted the £50k cash) consult a professionally qualified financial planner and/or private client solicitor to discuss the options and the content of mum’s will (and possibly those of h’s parents; – I take it father is off the scene - that is divorced from Mum or deceased). I’d suspect they’d advise against the idea of a further property purchase after being told the three’s full financial circumstances and goals.

To prepare your thinking for that, if you/they read this BB you will see discussion of how a property can have legal owner(s) different from beneficial owners. For an introduction from HMRC see

http://www.hmrc.gov.uk/cto/customerguide/page9.htm#2

Currently Mum appears to have the entire absolute interest (both legal and beneficial) in the house but is probably not reporting the rental income from s/h and her deductible mortgage interest.

The common goal of the three of them looks to be that overtime the beneficial ownership of s/h in the house should increase as and when they can afford a repayment mortgage. There look to be various options for the professionals to advise on. For example Mum could sell by deed almost most of her beneficial interest to s/h, if she needs the money back, for upto £50k and s/h could join her as co-mortgagors and legal owners (with the agreement of mortgage company and the paperwork on that and deed etc to be prepared by solicitor). There should be no CGT payable and SDLT/IHT mitigation would be for professionals to advise on. Subsequently, if their advice is unclear or in conflict on taxation aspects then come back to this BB here.