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Is the mortgage market turbulence getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at [email protected].
Question: We sold our house and bought another outright. We then put down a deposit down and took a mortgage out on a flat so that our son and daughter could live there. They have paid us monthly so far but how can we transfer the flat to them without being stung financially?
Answer: Transferring a property to your son or daughter can involve various considerations, and it’s advisable to consult with a legal professional who can ensure you receive the correct advice based on your whole individual circumstances.
However, there are some general steps and considerations you might want to keep in mind when considering transferring an asset such as the flat to a dependent.
First, as there is an existing mortgage on the home, you will need to inform the mortgage lender about your intentions to transfer, which unfortunately will be the biggest stumbling block.
Some lenders may allow the transfer, while the majority will have reservations against the prospect. This is because lenders typically want those who are named on the mortgage to be on the title.
Assuming the lender is OK, the next few considerations will be whether you either gift the property to your son and daughter or sell it to them.
If you decide to sell, you can choose to sell it at a nominal price or at a value that reflects the current market conditions and ensure there is a sale agreement. They will also need to consider the stamp duty in the event of a sale.
Were as if you opt to gift the property, you’ll need a deed of gift. Gifting a property to your children can be an effective way to minimise their inheritance tax liability.
Inheritance tax is charged at 40 per cent on estates worth more than £325,000 – with some caveats – and would recommend consulting with a tax adviser who can help you understand the tax implications of the transfer.
Owning a property can offer financial security and future prosperity, but it is still a commitment that needs an equally measured thought out process.
For example, considering the long-term implications of the transfer – such as what happens if your son or daughter decides to sell the property in the future. Discussing and planning for such scenarios in advance can prevent potential issues between family members.
Lastly due to the close ties it is important that both parties seek independent legal advice. This ensures that everyone involved fully understands the implications and obligations of the transfer.
