Purchase of parents home by son.

Purchase of parents home by son.

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A father who recently lost his job then found another job but one with a much lower salary. He is 59 and has a mortgage with a £60,000 balance and 8 years remaining on it. The repayments on the mortgage will take up virtually all of the net income on his new (lower) earnings leaving nothing on which to live. He and his wife own no other assets other than their own home and it has an open market value of approx £110,000.
Can the son buy a part of the house for the cost of the outstanding mortgage and have the equity gifted to him. He would then let the parents rent back the property at market value. The arrangement is purely to allow the parents to remain in the property. They are aware that they could sell at MV and retain the equity but would obviously have to rent somewhere else which they don't want to do. In the circumstances the son's suggestion seems the only route.
1.Are gift with reservation and pre owned assets regulations avioded due to market rent.
2.Would an estate agent(or 2) valuation be wise.
3.Would a formal deed of gift need to be made to cover the equity being gifted.
4.Is the market value at time of transfer the deemed cost fot CGT.
Any definitive advice would be gratefully appreciated as well as any points not noted above.
P Davies

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By AnonymousUser
18th Jul 2006 09:11

Tax seems OK, but...
I cannot quite understand why the son is not purchasing the whole, but apparently just a part of the home. The latter probably results in complications with the mortgage but is there perhaps not total trust between the parties which makes the parents hang on to something? For the moment(PD can always come back) I will answer on the basis that the entire equity, subject to the mortgage,will be conveyed .

1. The rules quoted should not impinge if a true market rent is going to be paid.
2. Absolutely vital, in my opinion. In fact, each side should appoint an estate agent who together will agree on the market value of the property, the main terms of the lease (which will not be for life) and the rent chargeable. The terms should be on a commercial-type basis which will include a rent review clause. Future reviews should be dealt with by an independent agent.
3. I was taught that real property cannot be transferred orally so a Deed of Gift and/or conveyance will be required.
4. The M.V. will be the son's deemed CGT cost.
The parents, on the figures given, will have sold at an undervalue of 110k minus 60k and have therefore each made a PET of 25K : at their ages, who cares assuming reasonable health? Turning to the son: he should be able to deduct the interest , on the mortgage he has assumed, from taxable rental income.
My "but" was prompted by thoughts that the parents' income position could be worsened by all this in time. Yes, possibly the rent payable will be less than total mortgage capital repayments and interest but the latter will disappear in 8 years leaving a burden of the lease.
Needs thought.

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