Buying 50% of Mum's House

[jalien]

Hi all, apologies if this post is a little hard to follow, I'll do my best. My fiance and I are currently saving for a deposit on our first place together, and at the moment we both live with our respective mothers. Recently, my mum threw out a proposition, and as such I've been trying to find information about the practicalities of her offer, and the best way for things to work. I understand we will need to seek proper legal advice but at the moment we're just trying to work out the basics . I've spent quite a while reading through threads and Google results, and now I'm hoping you might help me clarify a few things, as I've read a lot of conflicting info.

The house
Mum and I live together in our family home. My dad passed away in 2007, so she now owns the whole property.
The house is likely worth around £250,000 at full market value.
Mum has around £9k to clear on her mortgage, and can do this with no penalty.

The offer
Mum would like to sell us 50% of the house at full value i.e. £125,000. She would then clear debts, and move to a second property she owns.
We would be allowed to live rent free in the house, and as tenants in common Mum would retain 50%, with my fiance and I owning 25% each.
Upon Mum's death, her share would be split equally with my sister and I, so at that point I would own 50%, my fiance 25% and my sister 25%. We would then probably buy my sister out and convert to beneficial joint tenancy.

Purchasing issues

My fiance and I can raise a mortgage of around £100k-110k and use our savings for a deposit of the remaining £15k-25k, giving us the £125k we need to buy 50% of the house.

IHT implications
As I understand it, there would be no IHT due in future on the 50% share sold to us at full market value. There would be IHT to pay on the 50% my mother retains, if her estate is over the threshold when that share passes to my sister and I. Is this an accurate understanding of the situation?
Would the fact we will not pay rent to my mother on her share of the property affect IHT? My mother is quite young so I would hope this is a non-issue, but you never know what is around the corner.

CGT implications
As the house is my mother's main residence, but will cease to be her main residence after the sale, I'm unsure whether the sale of her share will be liable for CGT. Any advice on this is greatly appreciated.

Stamp duty
As I understand it, stamp duty should probably be paid on the full value of the property, despite the sale only being for half of the property. Is this accurate?

Mortgage issues
I've read that in order for us to mortgage 50% of the property, Mum also needs to be named on the mortgage, as she will be named on the deeds. This is definitely an undesireable situation, as part of her reason for selling is to be mortgage free. I have read that regardless of whether she owns 1%, 50% or 99%, she would be jointly liable for the whole mortgage just like we are. Is this true? Is there any way around this with lenders?

Future welfare benefit issues for Mum
I've read online about situations where a house is gifted, or sold for much less than market value, and in the future it has affected the parent's eligibility for housing benefit, social care, etc. This is obviously not the situation here, but in some cases, rent-free living appears to be an issue. Would the fact we wont be paying rent potentially impact Mum's ability to get help from uk.gov in the future?

Alternative scenarios

I don't know whether there are any alternative ways to handle the transaction, which may prove more beneficial to some/all parties, so I would really appreciate any ideas or guidance here, so we can be armed with as much information as possible when we do consult a solicitor/conveyancer.

Some alternative ideas - legal status unknown

1) We buy the whole house, using Mum's half along with our deposit to get a 35% LTV mortgage. We get a far better mortgage rate as a result. We then add Mum back onto the deeds and give her 50% back. I don't know what would then happen with the mortgage, and whether Mum would then be added to it. There may also be stamp duty to pay a second time?

2) We buy the whole house with the 35% LTV mortgage, and a separate legal document is drawn up, to agree that if the house is sold whilst Mum is still alive, she is entitled to 50% of the proceeds, or if sold after her death, that my sister is entitled to 25% of the proceeds.


I really appreciate any and all advice you can give to us to help us on our way.

[JustinN]

Very briefly -

IHT: You are correct. In my view, there should be no IHT as a result of you living rent free in the property: joint owners have a right of occupation unless excluded by agreement. It might be best to enter into a trust deed, making it clear that all joint owners, including your mother, have a right of rent free occupation. Your mother does not need to exercise that right

CGT: There will be no CGT payable by your mother when she sells her half share to you and your fiance, as the PPR exemption applies. There would be CGT on your mother's retained half share if the house is sold duting her lifetime. If it is not sold by the time she dies, the IHT liability alone will apply - there will be a "tax free uplift" for CGT purposes. Your sist's quarter share would be liable for CGT if she retains it and the house is later sold

Stamp Duty Land Tax: This is payable on the "consideration" - on the amount you pay for the half share your mother is selling. At £125k, this is nil

Mortgage: If your mother remains a legal owner, she would need to sign the mortgage, and would be potentially liable for the full debt. She can have some protection by means of appropriate provisions in a trust deed, but that is not complete protection. Alternatively, she could have only a beneficial interest (under a trust deed), so no need to sign the mortgage, but she is still at risk of losing her beneficial interest if you default under the mortgage

Welfare benefits: The risk here is that, by not charging you rent, your mother could be said to have given away a source of income. However, the right of rent free occupation, especially if included in a trust deed, should protect her against that. The trust deed should also (I suggest) include a provision that the house cannot be sold without the consent of all owners living in it as their home, so that your mother cannot be forced to force its sale

Your alternative scenario 1 is really the same issue as under the "Mortgage" heading. Alternative scenario 2 amounts to your mother having a beneficial interest (but not legal ownership) as envisaged under "Mortgage" above

I hope this quick overview helps

[Kaz]

Hi jalien

Just a quick question:

You say that your mum's house is 'likely' worth £250,000. If you go ahead with this, do you intend to have it formally valued by a couple of EAs first so that the deal is based on its actual value? Afterall, most people think that their house is worth more than it actually is, especially in the current market.