The rules / law regarding a gifted property

[John Naguib]

Hi all after some advice?

My mum wants to gift me her property so that I can remortgage and use the equity to build an investment portfolio.

I have now been speaking with a few solicitors and I feel they are making it more difficult than what it needs to be.

Do we need to have legal representation to transfer the ownership of the property? And what are the implications if myself and my mother just go to the land registry office and have I transferred there?

The house has no mortgage and there are no other family involved (I.e no siblings)

[Silvio Orlando]

What's the complication?  I'd understand if there was siblings involved, but if 100% of the house is going to you I would have thought that makes things easier!

 

If you do work out a solution, one thing to be aware of is that if your Mum is going to continue living in the house, she's going to have to pay you a market rent.  If she lives there rent-free or on a mates rates rent, HMRC will look harshly at that. 

[Stuart H]

Hi John.

You may wish to consider getting some specialist tax planning advice if you haven't already done so and then work back from there. Is there potential IHT due on the gift?; does your mum appreciate she may lose her home if things don't work out?

An alternative may be to encourage your mum to remortgage the property herself. This has the added benefit of a more attractive personal, rather than BTL, loan rate and a higher LTV. She can gift you a set amount of the remortgage to kick-start your portfolio. At this point you can do two things; sign a memorandum of understanding that this is a 'gift without reservation' meaning it will fall out with IHT, and sign a further document that the gift is in fact a loan repayable at a later date. Your mum could ask the solicitor to hold both these documents in sealed envelopes so that they remain private; open the first upon her death, or the second in the unlikely event she requires the funds repaid and you are no longer on speaking terms.

There are a myriad of options here as I type this and I would be sorely tempted to get some specialist advice based on your own unique circumstances.

Stuart.

[Nicolina Andall]

I agree with the sage words of advice to get some specialist advice on this one just so you are aware of the impact it has on you.

From the lawyers perspective, they are always mindful of getting sued so they will conduct the equity transfer by the book - irrespective of whether there are siblings or not. Presumably, that will mean you will be interviewed in depth to ensure everything is above board. They will also need to interview your mother independently to ensure she is corpus mentis (ie. understands what she is doing) and is not under undue pressure from you to undertake this course of action. Once comfortable with this, they will write to you both separately and prepare the TR1 (land transfer form) which gets lodged at the land registry. Costs should be around £1000 - but it's done above board and will be difficult to dispute in due course.

Now - Other important considerations!

CAPITAL GAINS TAX - ensure you gather evidence of the value of the property at the time of transfer. In a normal deal - this would be the price! You don't have this here... Get it valued by an estate agent and keep the info safe on file. You'll need it for the mortgage lender anyway. For this - higher is better.

IHT - this is good tax planning if your mother had planned to gift the property to you anyway (starts the 7yr tapering relief clock planning)

YOUR WILL! A sobering thought but do consider what would happen to the property if YOU died before your mother... Consider putting something into your own will (you've got one right?) to ensure the property reverts BACK to her or at least provides in some way so she gets some security of tenure.... Check your estate to see if you might need to cover any potential inheritance tax that might need to be paid!

HMRC - this will be an investment prop from HMRC eyes so you must treat it and declare it as property income at market rate. Tax man has really cracked down on prop investors recently and land registry & hmrc do exchange data to check that the no. Of props registered to your name are reported.

MORTGAGE LENDER - They will ask if there are any occupants over the age of 18 in the house. BE AWARE that if the answer is "YES" then there is a likelihood that lenders may refuse to lend on the basis of some obscure legislation ... "Is it really a BTL in these circumstances?" they may say. Worth checking with a good mortgage broker before you do anything.

Although I respect it seems really straightforward.... There are many potential potholes... Get the advice you need so both you and your mother go into this with your eyes open.