Informal "shared ownership" - buying with family?

[Thora]

Mr. Thora and I have been looking at shared ownership properties built by our old housing association, and basically it's a rubbish deal They won't let us have a house, only flats, and apparently they decide how much of a share we can afford to buy not us. And they're are tiny, expensive, open plan flats with no storage of course.

Anyway, my parents have been talking about the possibility of us entering into some kind of shared ownership thing with them to buy a house - they have the deposit, and ideally we would then both get mortgages, them for 2/3s us for 1/3, or possibly 50:50. We'd then pay our mortgage and rent to them.

So, is it possible to do this? Has anyone done it? And would it be possible for us to buy their share bit by bit as we have the money to?

 

[pinkmonkey]

When I was married we had a private mortgage with my husbands grandfather - go see a solicitor and try to get it all in writing.

 

[wiskey]

Funny I was discussing something very similar yesterday, I shall watch thread with interest

 

[zenie]

Would it be possible for you to buy with them and then just pay 100% of the mortgage yourself? You could get something drafted up legally then and buy each % bit off them for a quid....

Lots of people buy with their parents thesedays.

 

[Thora]

I don't know how it would work to just buy together - would that make us all joint owners of the whole property? I think they will probably want some income from their share even if a pretty token amount.

 

[DownwardDog]

You need to put the property into a trust. Whoever is not living in it will have Capital Gains Tax liability when they get bought out so watch out for that. They may have to "move in" for six months before if there is going to be a buyout.

You also need to think about estate planning, you could get wiped out by inheritance tax if they both croak - depending on what the house is worth and any other assets they might have.

Basically, you need professional advice make sure as little cash as possible ends up in the grasping claws of HMRCunts.

 

[Thora]

I don't think inheritance tax would be an issue, and hopefully we would be able to buy their share of the house before they die anyway. Would there still be a capital gains tax issue if we buy them out a bit at a time?

 

[DownwardDog]

Would there still be a capital gains tax issue if we buy them out a bit at a time?

It depends on how much you pay them! If they make money on their house that's not their primary residence then that's a CGT liability.

Buying it off them gradually is complicated because the trust will have to be redrawn to reflect the change in ownership each time and it (probably) violates the terms of the mortgage. ie their loan is now secured on a lesser fraction of the property.

 

[Thora]

OK, so maybe going for a 50:50 split and then buying out their half in one go if/when we can afford to is the easiest way to go?

 

[DownwardDog]

OK, so maybe going for a 50:50 split and then buying out their half in one go if/when we can afford to is the easiest way to go?

I'd say so. Just remember the trust can be dissolved by either party to force a sale so don't have a bust up with them...

 

[Puddy_Tat]

As others have said, yes I can't see why not, but you're definitely going to need to spend a bit on getting proper legal advice before you go into it, and getting the whole thing properly established on paper.

You may also have to go for a more specialised mortgage lender / deal than a bog standard off the shelf sort of thing.

Technically, I'd have thought that parents' share of the house would be part of their estate if they were to die (or would only the part that isn't mortgaged be part of their estate?) so there might be an IHT issue.

Also, and while I'm sorry to raise the possibility, but it's best to think about these things - what would happen if one parent died - would the remaining parent still be able to keep up their end of the mortgage?

My understanding of CGT and trusts is pretty much non-existent but can see this being a potential issue.

 

[Monkeygrinder's Organ]

OK, so maybe going for a 50:50 split and then buying out their half in one go if/when we can afford to is the easiest way to go?

If you bought them out at the rate they paid for it then there wouldn't be a capital gains issue regardless of the percentages as they wouldn't have made a gain to tax. I agree inheritence tax might be an issue though.

I'm sure there will be mortgages set up for this situation specifically if you look around.

 

[Thora]

I think inheritance tax kicks in still a bit above what 1.5 houses would be worth, and they're only in their 50s so hopefully we won't be inheriting anything from them for a long time

 

[aqua]

I think inheritance tax kicks in still a bit above what 1.5 houses would be worth, and they're only in their 50s so hopefully we won't be inheriting anything from them for a long time

it's really not that high once (multiple) property is included - £325,000 (from 2015) or more and you pay it (includes all finances not just house)

 

[Monkeygrinder's Organ]

The other thing to watch out for is that if you did buy from your parents at a later date at the value they paid for it and the price has gone up then HMRC might view that as a tax avoidance issue as you'd be buying below market value. You'd need to get proper advice on that though.

 

[Thora]

it's really not that high once (multiple) property is included - £325,000 (from 2015) or more and you pay it (includes all finances not just house)

I reckon their house is worth £200k-ish and we are looking at houses worth £150-£180k, so it might just about reach that. Of course I don't know how much other money they have now or what they will do once they retire, or indeed what might be left by the time they die. Either way I doubt inheritance tax is going to be a major concern for us.

 

[Thora]

The other thing to watch out for is that if you did buy from your parents at a later date at the value they paid for it and the price has gone up then HMRC might view that as a tax avoidance issue as you'd be buying below market value. You'd need to get proper advice on that though.

OK, that does sound complicated!

 

[Monkeygrinder's Organ]

OK, that does sound complicated!

Well I might be wrong, it's just something that might come up. If you tried something like that with a non family member it would look suspect, with parents it might be OK.

I think the overall message of the thread is 'talk to an expert' really isn't it.

 

[Monkeygrinder's Organ]

http://www.sharetobuy.com/information/buying-property-with-family

We went through these people when we got our mortgage and it looks like they do shared mortgages with families so they might be worth talking to. Not the same situation but they were fine with us.

 

[lighterthief]

Why don't your parents remortgage against the value of their property and lend you a lump sum? Then you pay back the interest to their lender, have a fat deposit to put down and consequently will probably get a better mortgage rate your side too. But your parents will need to trust that you can and will repay their loan, and I don't know what would happen if someone on either side died (always plan for the worst!)

Edit: actually you and your parents would probably both want to take out life insurance to cover their remortgage. I don't think your mortgage lender would be happy having a second charge on the property, so yr folks would probably need to rely on you being a good kid and keep up the repayments. Either way a couple of hours with a solicitor could help, there will be thousands doing the same thing.

 

[likesfish]

Need to see a lawyer whatever you decide even if everyones happy at the moment stuff happens.
A lot of money and the taxman will be involved at some point.
Much better spending some cash now or a load of cash later.

 

[wiskey]

Why don't your parents remortgage against the value of their property and lend you a lump sum?

this si more the situation I'm in, possibly got a big deposit (this is all speculation but since the thread is here . . . ) but I have a shit credit rating so I'm not even sure if I'd get a mortgage in my name. In which case I'd need my parents to be guarantors wouldn't I?

 

[DownwardDog]

If you bought them out at the rate they paid for it then there wouldn't be a capital gains issue regardless of the percentages as they wouldn't have made a gain to tax. I agree inheritence tax might be an issue though.

I'm sure there will be mortgages set up for this situation specifically if you look around.

A BMV sale of the parents' portion would be straightforward inheritance tax evasion. I applaud all manner of tax evasion except ones where you get caught...

 

[Manter]

I looked into this for my brother. Mortgages are difficult if you are buying with a person who isn't moving in and is using it as an investment- banks usually want to include a prior claim clause, so if you default and they foreclose your parents could lose everything. A trust is the only sensible option, but that can be a bit complicated to set up and maintain. Do lots of research, see a specialist lawyer and ifa. Make sure you understand it before you sign it (and it sound with those values like inheritance tax is very much an issue)
Better route may be deposit and guarantee. They can give you a gift as long as it stays below certain levels and they live for 7 years. Or it can be a loan, but you'll need to document that properly.
For all of this you'd need a decent mortgage broker (not the sort that sit around in estate agents offices)- they can still find some interesting stuff if they know where they are looking. The one I used for my brother is in Yorkshire so bugger all use to any of you, but he was a specialist in complicated situations who was an ifa and broker, and he put us in touch with a lawyer who was fab. He found my brother a mortgage despite fluctuating income(he's a contractor at the mo) low income and crappy credit rating.

 

[dessiato]

Some friends of ours did this a few years ago. It was a total disaster. Although while living apart the parent and daughter-in-law had managed to get on, this soon stopped! Also when they had a baby and the new grandparents didn't want to hear it crying in the night... After two years the whole thing was just a nightmare and they had to sell up and move out.

The principal is good, but there is likely to be a lot of lost privacy even if you are not living together, due to them needing to know the ins and outs of your personal finances.

 

[Johnny Canuck3]

I don't know how it would work to just buy together - would that make us all joint owners of the whole property? I think they will probably want some income from their share even if a pretty token amount.

See a lawyer about the details and ramifications. And proceed carefully: it's always been my opinion that going into a business deal with family is a really bad idea.

 

[spanglechick]

Some friends of ours did this a few years ago. It was a total disaster. Although while living apart the parent and daughter-in-law had managed to get on, this soon stopped! Also when they had a baby and the new grandparents didn't want to hear it crying in the night... After two years the whole thing was just a nightmare and they had to sell up and move out.

The principal is good, but there is likely to be a lot of lost privacy even if you are not living together, due to them needing to know the ins and outs of your personal finances.

Theyre not planning to live together.

 

[dessiato]

Theyre not planning to live together.

That will make life much better! Sharing always leads to problems in my experience.

 

[Mrs Magpie]

I don't think inheritance tax would be an issue, and hopefully we would be able to buy their share of the house before they die anyway. Would there still be a capital gains tax issue if we buy them out a bit at a time?

With a house, if inheritance tax isn't an issue now, it may well be a few years down the line. You need proper legal advice to protect you and the parents from nasty unintended surprises.

 

[StoneRoad]

With a house, if inheritance tax isn't an issue now, it may well be a few years down the line. You need proper legal advice to protect you and the parents from nasty unintended surprises.

And, if you do go ahead, be advised to keep a close eye on any poosible/related changes to inheritance tax rules etc - such things are often changed !!