Re: RR and JB: "Beneficial" gift of part a property doesn't affect the mortgage...?
- From: Ronald Raygun <no.spam@xxxxxxxxxxxxxxxxxxxxx>
- Date: Mon, 29 May 2006 12:32:26 GMT
Troy Steadman wrote:
This is something I don't understand, and don't seem to be able to
Google. I have a wife and adult son "Homey", who lives with us, and an
adult son "Romeo", who has left home for good. I am...
1) About to buy 50% of the house I live in and which I already co-own,
from my mother's estate, by taking out a mortgage.
Yes, yes, this is the deal with the ice maidens.
2) The house is valued at £400k by the District Valuer, and £200k is
the 50% price I am paying.
3) Foxtons value the house at around £900k.
Hmm, you'll be lucky. Even your £850 below looks optimistic. :-)
"Homey" is utterly trustworthy, and will move with us into a smaller
property. Now seems like an excellent opportunity to give him his
inheritance!
CURRENTLY
House £400k
New mortgage £250k (includes 25k of repayments and £25k for
improvements)
Value £150K?
Value £400k, equity £150k.
Gift to "Homey" of 1/2 of house represents £75k for IHT purposes?
Probably. You're giving him £200k worth of house and he takes on
half the responsibility for repaying the mortgage.
If we sell the house for £850k, less mortgage £250k, ie £600k:
1) He will have £200k to "gift" to "Romeo".
This is where his trustworthiness comes in. You hope. And Romeo.
2) I will have £200k to invest in a new £300k house for us to live
in.
3) "Homey" puts up the other £100k for the house.
You hope.
4) [He and](correction noted) I have £100k of spare cash,
Is Homer getting a raw deal here? He had £425k worth of house minus
£125k of mortgage debt, then upon sale this is converted for a brief
while into £300k of cash, and then he has to give £200k of it away to
Romeo and to tie up the other £100k in your new house.
Q1: Why does Romeo get twice as much as Homer, and in cash?
Q2: Why do you get a spare £100k and Homer not? You and he both owned
half the house, after all. Like him, you had £425k worth of house minus
£125k of debt. Both had £300k equity, converted to cash. Yet he has to
give 2/3 of it away and invest the rest.
no IHT problems, and £400k of
my estate has been distributed at a mere cost of £75k.
What £400k? I only see £300k received, 200 by Romeo in cash, and 100 by
Homer in new house equity. Likewise on the donation side. You end up with
£300k of your own (100 in cash, 200 in equity). Had you not gifted half
the old house to Homer prior to sale, you'd have £600k cash prior to
buying the new pad.
That discrepancy apart, the plan looks good, i.e. gift him £75k worth of
equity and let *him* "earn" half the capital gain instead of you earning
all of it. So if you snuff it before the clock strikes seven he's in
the clear.
If you genuinely give your house away for IHT purposes, how can it not
affect the mortgaging bank?
It need not concern the lender if the gift is not recorded in the deeds,
but merely notified to HMRC in an informal memorandum. The snag, of course,
is that you still remain formally responsible for repaying the whole loan,
and Homer is merely honour-bound to reimburse you his half.
If the change of ownership were to be recorded on the deeds, the lender
would need to agree to a joint mortgage, with all the income formula
rigmarole that would entail.
.
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- RR and JB: "Beneficial" gift of part a property doesn't affect the mortgage...?
- From: Troy Steadman
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