Implications of selling half house and converting other half to investment?

J

JavMasterJ

Guest
Hi Everybody,

We are considering trading up in the next while and are looking at a few options - one idea came to us that might be a good one or a bizzare one! Here's the proposal:

We sell half of our house to a friend of ours who is looking to get a foot onto the property ladder. They are buying on their own so the amount they can borrow for a mortgage is limited, we are happy to help them if we can. So now we receive 50% of the market value of the house as payment.

Then the other 50% we keep on but 'convert' to an investment for ourselves - effectively the other half of the house would be rented to somebody who would live with our friend. So we get to keep on half of the house as an appreciating asset which might be useful when we need a chunk of cash in 10 years time or so.

From my research so far I think we need to cover the following:
  • Legal agreement covering terms when the our investment half of the house could be bought
  • We were FTBs - now we will face stamp duty clawback since we are converting PPR to investment
  • We'll have income tax on rental income from our share
  • We'll have capital gains tax on our share if/when we sell it
Really I am wondering if there are any major tax or legal gotchas that might make this a bad idea from our point of view?

Thanks as usual for any input.
 
JavMasterJ said:
Hi Everybody,

We are considering trading up in the next while and are looking at a few options - one idea came to us that might be a good one or a bizzare one! Here's the proposal:

We sell half of our house to a friend of ours who is looking to get a foot onto the property ladder. They are buying on their own so the amount they can borrow for a mortgage is limited, we are happy to help them if we can. So now we receive 50% of the market value of the house as payment.

Then the other 50% we keep on but 'convert' to an investment for ourselves - effectively the other half of the house would be rented to somebody who would live with our friend. So we get to keep on half of the house as an appreciating asset which might be useful when we need a chunk of cash in 10 years time or so.

From my research so far I think we need to cover the following:
  • Legal agreement covering terms when the our investment half of the house could be bought
  • We were FTBs - now we will face stamp duty clawback since we are converting PPR to investment
  • We'll have income tax on rental income from our share
  • We'll have capital gains tax on our share if/when we sell it
Really I am wondering if there are any major tax or legal gotchas that might make this a bad idea from our point of view?

Thanks as usual for any input.
Click to expand...

why not take the 50% and invest it in your pension with great tax benefits and good long term returns? you should consider diversifying your investment portfolio,what if property in ireland hits the wall? theres not much more room for large appreciation and you will e taxed on rental income capital gains upon selling in future.these sort of agreements are infamous for causing problems between friends and will friend get first time buyers exemption on stamp duty etc?
 
Hi bearishbull,

I'm pretty ok on pension funding at the moment - in fact the property investment was my bit of diversity.

I do take the point though about these types of agreement potentially leading to trouble down the road between friends, I'll also checkout the stamp duty question - hadn't considered it from the friend's point of view.

Thanks for your input.
 
JavMasterJ said:
Hi bearishbull,

I'll also checkout the stamp duty question - hadn't considered it from the friend's point of view.
Click to expand...

Thats an interesting one alright hopefully someone can answer that for us! Referring to your first post though what happens if the property drops in value in ten years that is very possible, ten years is a long time! Unlikely prices are going to be rising at their present rate then I would have thought
 
We sell half of our house to a friend of ours who is looking to get a foot onto the property ladder. They are buying on their own so the amount they can borrow for a mortgage is limited, we are happy to help them if we can. So now we receive 50% of the market value of the house as payment
Click to expand...

Your problem here will be that mortgage lenders will not provide your friend with a mortgage to buy half a house... its all or nothing.
 
Hi Molly,

Thanks for that - might put a spanner in the works alright!
 
Molly said:
Your problem here will be that mortgage lenders will not provide your friend with a mortgage to buy half a house... its all or nothing.
Click to expand...

didnt realise that! That would be an insurmountable problem
 
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