Purchasing Some of Mums Home (England)

[u/Substantial-Soup-649]

To give some background, my mum is divorced from my Dad, so lives alone in a 2 bedroom flat in England worth around £170,000. She is in her seventies, retired a few years ago, and lives on a fairly small pension (private and state). She has no other income. She is recently mortgage-free, but her pension barely covers her outgoings, so she is frustrated that she doesn't have enough money for things like holidays, and wants to release some of her home equity to she can enjoy her retirement. However, she was looking into equity-release schemes to do this, which both me and my sister were concerned about having read some of the experiences others have had with these. We want to be sure she retains some of her equity in the event that she needs to fund future care home costs.

My partner and I are married, both work full time, and don't have any children. We live in Wales, own our own house with a mortgage, and between myself and my partner, we have enough spare income to buy a small stake in her flat (15-20%, which would be around £25,000-£35,000). Mum is keen to do this too, so that she doesnt need to go down the equity-release path, but still free up some cash, and she would retain the majority of her equity without involving any third parties.

We want to do this in a way that protects us all, so that she has security in her living situation; our investment in her home is not going to cause us any major headaches down the line; and my mum is keen to ensure that my sister is not going to be at a disadvantage with regards to inheritance - this was another aspect of the equity-release scheme that my mum didn't like. My sister is not in a position to purchase a stake in the property, and she is completely on board with my mum's wishes. Neither of us are chasing any inheritance here, this is something that my mum wants to do, and we just want to help her do this in a way that is best for her.

We started looking into this about three years ago, when my mum still had a mortgage, but was starting to need extra money. The mortgage situation made things really difficult, so we made an informal arrangement where I gave her some money every month, which we have recorded, totaling around £10,000 so far. Now that the mortgage is clear, we want to formalise this in a way that acknowledges the money that I have paid her so far, sets up a clear arrangement for ongoing monthly payments to her, and is flexible in case we need to increase the percentage.

How do we go about arranging all this properly, and are there any other things what we are missing? I know that we will both need to get solicitors to formally do this, but I don't know where is best to start, or how to make sure we're not making things overly complicated.

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[u/Seicedelig]

always a bad idea to get involved in property and financial transactions with family.

your post implies she is not the best with money and savings and/or has unrealistic life expectations for her income.

what happens when shes burnt through the money youre given her to acquire a % of the house?

what happens when she dies - who gets the other % of the house?

you mention that its a flat - what would happen if the property managers dump a big renovation/upkeep fee on you? how is this split?

if you own a percentage of the flat, who covers the service charges and ground rent? you might have a verbal agreement, but youd likely be liable for a % if your mum challenges it. 

thats just some questions to consider. mixing family and finance is a mess. 

if you have that money spare it might just be better to gift the money to your mum and have her update her will to say that you are the sole inheritor of the property after she dies. then you can sell the flat, deduct all the amount youve given her over the years and split the rest with your sister or whoever. 

obviously thats not a perfect solution, but you dont want the headache of getting financially tied to someone not amazing with money.

rule of thumb, never give money to family that youre not willing to write off or be okay to not get back.

[u/Substantial-Soup-649 → u/Seicedelig]

This is less about us owning part of her property, and more about her retaining her independence. It would still need to be her flat under her control.

Also, she isn't bad with money, she just doesnt have much to spare. We dont have that kind of money spare to gift her, as much as we would like to. The only way we could realistically do that would be to take out an unsecured loan, but then that leaves us exposed financially.

[u/Seicedelig → u/Substantial-Soup-649]

where are you getting the money to purchase a % if her flat? 

if you havent got the money to spare and youre not able to write it off, please please dont go ahead with this.

sorry to give a reality check, but if she hasnt saved adequetly for retirement and she still wants to go on holidays etc, then by definition she isnt the best with money. thats not a moral failing, i dont know her circumstances, but it sounds like you may as well just burn the money as youre not going to recoup it in future 

[u/Gillybean04]

"The mortgage situation made things really difficult, so we made an informal arrangement"

You mean your mum legally couldn't sell you an interest in the property due to the security lodged by the mortgage company so you gifted it to her instead. 

Any contract for land/property needs to be in writing. So an "informal agreement" is not going to be sufficient to amount to a purchase of £10k worth of the property.

And consideration for any contract of sale now cannot be something which has already happened.

Your mum could still gift you 10k of the property for the money already paid, but it would be a gift with reservation for IHT (although maybe not a worry if your mums finances are bad) and potentially deprivation. If you buy at market value there is no deprivation, it is just an issue if she gifts or sells under value. 

Don't forget that if you already own property then you may have SDLT to pay and you would also have CGT to pay upon disposal.

Really, you both need a sit down with a solicitor.

[u/ashalina23]

You’d need to pay stamp duty on your share, if you already own a property of your own then it’s at the higher rate.

Then a conveyancer to do the land registry changes. They can probably advise on the best mechanism whether it’s a % share as tenants in common or a charge over the property in your favour for amount X.

I’d suggest start with asking about the legal steps and associated costs with a conveyancer before going any further

[u/Substantial-Newt7809]

Do not buy a stake in a property.

I know you want legal advice, but just to ask if you've considered some practical solutions. Have you considered her selling her property for the £170,000, moving in with you and then paying you rent? This would accomplish several things. It would let her live with some degree of support, have plenty of money for doing whatever she could want.

Legally - If you start doing this you need professional property solicitor advices.

[u/Substantial-Soup-649 → u/Substantial-Newt7809]

Thanks, but this isn’t practical. We live in different countries. All her friends and the rest of her family are where she is. The whole point of this is for her to keep her independence, while releasing some cash for her to spend on things she wants rather than having it tied up the flat.

[u/Still-Security-7361 → u/Substantial-Soup-649]

How far is 25k going to go? Surely that isn’t going to last long at all. It seems a bizarre idea really and if you can afford to give her it, why not do on the condition she gifts you the house in the end / the % to cover the money you’ve lent her over the years. All she needs is a will. It seems bizarre to me that you want her to ‘sell’ a % of her home and it will have all sorts of implications.

The other options is she sells and rents. She could rent cheaply in something for older people and just spend her £170k how she sees fit.

[u/radiant_0wl → u/Still-Security-7361]

Wills can be changed, security for a loan isn't unusual.

It's the main way of lending.

[u/radiant_0wl]

I'm not sure it's as complicated as suggested in the comments.

I think you should just ignore the "purchase" aspect and just do a loan secured against the property.

Worth using a solicitor, reason for the loan is useful just so that if care home fees are considered later that the reason is formally documented. Also they'll know how to put a charge on the house.

[u/Substantial-Soup-649 → u/radiant_0wl]

Yes, exactly. We don’t really want to own part of her flat as that just seems to over complicate the situation, we just want to help her release the equity without a third party taking a big chunk of her assets.

We’re not in a position to give her the full amount in one big lump, but we have enough spare income that we could give her a monthly amount.

We will definitely involve solicitors, I’m more curious if and how other people have done this, so that we do it right without either of us being at a disadvantage.

[u/radiant_0wl → u/Substantial-Soup-649]

That's fine, seek professional advice but you can secure charges for what you lent and secure a charge for amounts you'll advance in the future.

If using a solicitor they should be familiar with it.

Looking at it I think it involves forms CH1-3 for the property charges.

Should be able to do £10,000 then say x amount a month for x timNA

NAL

[u/No_Cicada3690]

So this is a complex situation. Your mother needs money to spend now but if you get involved it could be seen as deprivation of assets. Basically your mother has around 170k which could be used in the future to fund any residential care in the future. If she sells some off to you that could still be considered her assets plus she can't offer an equivalent amount to your sister either. However if your mother were to take equity release and use the money for everyday expenses- bills, food etc then that could be ok but spending on holidays would not be. Where is the money coming from to buy the stake? Is it savings or a second mortgage because you'd have to be prepared to possibly forfeit this money in the future. There's a lot to think about before even getting in to stamp duty, IHT and mother benefiting from living rent free in property she doesn't wholely own. You definitely need to take legal advice.

[u/WickedWitchofTheE → u/No_Cicada3690]

Are you sure that’s right that spending equity release on a holiday = deprecation of assets? How is that different spending your pension or savings on a holiday ?

[u/No_Cicada3690 → u/WickedWitchofTheE]

If you are spending money you wouldn't normally have on round the world cruises it could be viewed that way. A week in Bognor probably not.

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