how to extend mortgage term for elderly parent without incuring CGT/stamp duty?

rustyjack

Registered User
Messages
102
Hello,

my father (age 65) owns a small number of rental properties which generate an income but which will not be sufficient to pay both for his retirement and his large short term mortgage (10 year) on said properties. If the mortgage term was longer or interest only for instance, he would be able to fund his retirement from the rental income.

One option to solve this is to sell some of the properties to me and I will take a mortgage on said properties over a longer timeframe. However, there would be a large CGT tax and smaller stamp duty tax associated with this.

I have read in this forum that a joint mortgage, single deeds mortgage may be the answer where the deeds are kept in his name. In this case, a joint mortgage is taken out by my father and I over a longer time period and pays off the short term mortgage. The assumption here would be that I would ultimately inherit the property when my father dies without CGT implications.

Does anyone have any experience of this? I understand I would be taking a significant risk as I would be required to pay the mortgage on the property if my father died and passed the apartment to some-one else. At a minimum, I would require that my father writes a will whereby the property in question is bequeathed to me.

Many thanks,
Rusty
 
Well, its worth asking the lender or another lender. A bank may be willing to join you in - or not. However, in the current climate, its hard to know. I find the banks very unwilling to do anything frankly. You can but ask.

It may well be worth the option of transferring properties now. Do the calculation on CGT and stamp duty - given the drop in values, it may not be as daunting as you think and may give you more flexibility.

mf
 
Well, its worth asking the lender or another lender. A bank may be willing to join you in - or not. However, in the current climate, its hard to know. I find the banks very unwilling to do anything frankly. You can but ask.

It may well be worth the option of transferring properties now. Do the calculation on CGT and stamp duty - given the drop in values, it may not be as daunting as you think and may give you more flexibility.

mf

thanks mf. Will ask lenders.
Would there be a problem with life insurance? If my father is on the deeds solely, i cannot imagine him getting life insurance for longer than say 10 years. Would this limit the term to 10 years as if my father died and the property passed to some-one else then i would have a mortgage on a house i did not own: i.e. i and the bank would have no security for the loan.

Can a joint mortgage be written together with a legal agreement such that on the death of my father, the property passes to me whereas in the case of my death, life insurance pays out?

Thanks
Rusty
 
Life cover may or may not be a problem. On investment properties, there really is no need for life cover - it is primarily for family homes BUT banks may well insist on it.

On your other question, I think you are trying to secure ownership without payment of tax!

I suspect that once he is the sole owner that technically he can leave the property to anyone he wants. You would have an argument about legitimate expectation if you were paying a mortgage but, frankly, given that that expectation was based on a tax avoidance basis, a Court may well take the view that they would not go with it. This is deep technical , estate planning stuff and I am not sufficiently qualified to advise.

Finally, it sounds as if these properties are not a good investment. If the rent covers an interest only mortgage only, then are they not just costing money not making money. Would it not make more sense just to sell them and be done with it?

mf
 
Life cover may or may not be a problem. On investment properties, there really is no need for life cover - it is primarily for family homes BUT banks may well insist on it.

On your other question, I think you are trying to secure ownership without payment of tax!

I suspect that once he is the sole owner that technically he can leave the property to anyone he wants. You would have an argument about legitimate expectation if you were paying a mortgage but, frankly, given that that expectation was based on a tax avoidance basis, a Court may well take the view that they would not go with it. This is deep technical , estate planning stuff and I am not sufficiently qualified to advise.

Finally, it sounds as if these properties are not a good investment. If the rent covers an interest only mortgage only, then are they not just costing money not making money. Would it not make more sense just to sell them and be done with it?

mf

thanks very much mf for your advice. I hope that everything i am considering is legally ok and that i am trying to avoid not evade tax.

What would happen in the following scenario?
A 20 year joint mortgage was obtained with my father solely on the deeds without life insurance. No extra legal agreement was written and my father dies and the property is passed to some-one else. I assume the mortgage in that case passes with the deeds? Or do i continue to pay the mortgage and some-one else owns the property? If it is the latter, i would expect that the mortgage would need to be cross-secured with my own residence from the bank's point of view.

The rent would cover a 20 year principal plus interest mortgage on the properties with enough for my dad for retirement so that is what we are hoping to achieve. Selling is an option but really a last resort as he still needs to make an income for his retirement. We estimate that he would get a reasonable rental income if the 20 year mortgage was secured. If he had to sell after payment of taxes etc, his retirement income could be considerably less unless interest rates significantly rise!!

Thanks again for your help,
Rusty
 
Have you bought your own home? If not, then encumbering yourself with investment mortgages would probably impact on your ability to borrow in the future.
 
Have you bought your own home? If not, then encumbering yourself with investment mortgages would probably impact on your ability to borrow in the future.

thanks for the reply. i have bought my own home which has a mortgage attached to it.
 
Back
Top