Retirement property thoughts

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macbrains
Posts: 10
Joined: November 4th, 2016, 10:05 am

Retirement property thoughts

Postby macbrains » January 9th, 2017, 4:18 pm

I've been debating which board this should be posted under - it contains elements of property, Legal and Taxes, or even DAK? If the moderator thinks it should be moved, please do so.

I would be very interested in Lemonfools thoughts on the following:

My wife and I have four children, two grown up and left home, one about to go travelling for a year or so, and our younger son in a steady job and still living at home. We have lived in our house for over 30 years, with mortgage paid off some time ago, and we are both happily retired.
We both feel we'd like a fresh start and would like to move to the West Country. Our house is worth perhaps £350,000, and we also have around £300,000 in capital. I'm lucky enough to have a final salary index linked pension, enough for both our needs if we had nothing else, and in addition, state pensions are available to us this year for my wife, and next year for me. These will be around £6500pa for my wife and slightly less for me. My wife is not a tax payer, and I pay tax at the basic rate.

We've been looking at houses around the £450k mark. My initial thought was the my younger son living at home (we charge him a nominal £200 a month but in reality are saving this for him) would need to rent in the town where we live as he isn't keen to come with us. A room might be around £600 a month all found, which he could just about afford.

My second thought was that I didn't want to see that rent going to a money grabbing landlord (!) and that we could buy a two bed roomed flat for maybe just over £200k with the help of a ten year mortgage and then rent it to him for the £600 a month, with the other bedroom being a base for us when we revisited (we have grandchildren here). This would restrict the top level of houses we could afford if we saw one for a lot over £450k, but at least the rent would stay within the family - and I would be the money grabbing landlord! He could buy us out at some point if possible - we'd be a bit like Help to Buy.

Many apologies for the length of this post, but I thought the background was important. Questions:

- clearly there are tax implications here, for second home stamp duty and probably income tax for the rent we would charge him (£600). Can these be minimised/avoided by arranging things differently (my son could not afford the mortgage on his own but could we share the cost/ownership in some way?)

-what about the legal implications? Ownership/title deeds/mortgage

-would I get a mortgage of maybe £100,000 at age 64 this year - I'd think of putting £100k of our money into it and my son could put maybe £20k if needed, but if he did then clearly we'd need to share any capital appreciation. Or would it be better for it to be just in the name of my wife and I, or maybe just my wife as a non taxpayer - but she wouldn't get the mortgage. The idea would be to pay the mortgage back over ten years from the state pension income.

- or should we do things differently? Undoubtedly there will be things I haven't thought of. Your comments would be most welcome. Thank you in advance
Rob

Dod1010
2 Lemon pips
Posts: 234
Joined: November 4th, 2016, 10:18 am

Re: Retirement property thoughts

Postby Dod1010 » January 9th, 2017, 5:35 pm

Someone else better qualified will no doubt answer your questions but do factor in the running costs, insurance, council tax and maintenance. Presumably your son, being the occupier, will pay the utilities, gas and electricity. These days some Councils penalise you for a second home, and I would think it important that your son is seen as responsible for the Council Tax so as to get the discount for a sole occupier.

Dod

Clitheroekid
Lemon Slice
Posts: 254
Joined: November 6th, 2016, 9:58 pm

Re: Retirement property thoughts

Postby Clitheroekid » January 9th, 2017, 8:56 pm

... our younger son in a steady job and still living at home.

One option would be for your son to buy the flat with the benefit of an interest only loan from your wife. If he can put up £20k, as you say, she could lend him £180k at, say 4%, which is a pretty good return. It would cost him £600 a month interest, but if she's a non-taxpayer then (depending on her other income) she could potentially receive it tax-free.

The loan could be secured by a mortgage in favour of your wife on the property.

An advantage of this is that there would be no CGT to pay on sale, and he would only pay the standard rate of SDLT instead of the 3% penalty rate that would apply if you bought it.

However, I appreciate that this would perhaps absorb more of your capital than you'd be happy with, and if so an alternative would be for him to take out a first mortgage for, say, £100k. You would then lend him the balance as above, secured by a second mortgage (though you would have to clear this with the lender first, as some won't allow second mortgages). This might actually work out better, as the interest your son would be paying your wife would be less likely to push her into the taxable income bracket, especially once she starts receiving the OAP.

As an alternative to charging interest you could simply agree that you would own a proportion of the ultimate sale proceeds based on the loan - so if you were lending £100k on a £200k price you would agree to split the net sale proceeds 50/50. Or you could have a combination of interest + equity share, according to how the figures stacked up for each of you.

macbrains
Posts: 10
Joined: November 4th, 2016, 10:05 am

Re: Retirement property thoughts

Postby macbrains » January 11th, 2017, 12:18 pm

Thank you very much to both of you - much food for thought.

CK - I particularly appreciate your alternatives as I hadn't thought of these. Am I right in thinking that any mortgage arrangement would need to be reflected in the legal ownership of the property? I assume we'd need a solicitor to set up any legal agreements.

If anyone has any other suggestions, I'd be pleased to hear them as our plans are still fluid.

Rob

Clitheroekid
Lemon Slice
Posts: 254
Joined: November 6th, 2016, 9:58 pm

Re: Retirement property thoughts

Postby Clitheroekid » January 11th, 2017, 12:57 pm

macbrains wrote:Am I right in thinking that any mortgage arrangement would need to be reflected in the legal ownership of the property? I assume we'd need a solicitor to set up any legal agreements.

The property would be owned in the sole name of your son, but the charge (mortgage) to you / your wife would be registered against the title to the flat at the Land Registry.

You don't strictly need a solicitor to deal with it, but as you would presumably be using one to buy the flat it would all be done at the same time. It shouldn't cost more than a couple of hundred quid on top of the normal conveyancing charges to set up and register the charge.

Raptor
Lemon Slice
Posts: 277
Joined: November 4th, 2016, 1:39 pm

Re: Retirement property thoughts

Postby Raptor » January 11th, 2017, 2:40 pm

Clitheroekid wrote:
macbrains wrote:Am I right in thinking that any mortgage arrangement would need to be reflected in the legal ownership of the property? I assume we'd need a solicitor to set up any legal agreements.

The property would be owned in the sole name of your son, but the charge (mortgage) to you / your wife would be registered against the title to the flat at the Land Registry.

You don't strictly need a solicitor to deal with it, but as you would presumably be using one to buy the flat it would all be done at the same time. It shouldn't cost more than a couple of hundred quid on top of the normal conveyancing charges to set up and register the charge.


In one of past lives I was an underwriter (sub-prime) and a few times this type of arrangement was stipulated in the "land registry". Various flavours were there, joint ownership, repay portion on sale, % of profit on sale, return to other party on death etc, etc. Would discuss with solicitor used for the purchase. If nothing there we have to assume everything belongs to and goes to the "owner" in the "land registry".

Raptor.

saechunu
Posts: 20
Joined: December 14th, 2016, 5:46 pm

Re: Retirement property thoughts

Postby saechunu » January 11th, 2017, 6:36 pm

I'd be thinking about the most basic of things such as does your son really wish to live in the same place for the next x (10?) years and even if he currently thinks he does is that really like to remain the case? If he chose or had to move, what problems would that create for you both?

[Post-Uni, I moved numerous times in the first few years, not because of work forcing me to but largely for social reasons.]

midnightcatprowl
Lemon Pip
Posts: 71
Joined: November 4th, 2016, 1:07 pm

Re: Retirement property thoughts

Postby midnightcatprowl » January 11th, 2017, 7:47 pm

I'd be thinking about the most basic of things such as does your son really wish to live in the same place for the next x (10?) years and even if he currently thinks he does is that really like to remain the case? If he chose or had to move, what problems would that create for you both?


Yes this is the bit I always wonder about when posts came up on The Fool and now here on Lemon Fool about various ways of providing or assisting off-spring by the purchase of a house or flat. I'm not suggesting it isn't a good idea as the rental market for housing is getting worse and worse and there are the well known difficulties for young people about buying on their own account. I do just wonder though what happens if your son wants or needs to move particularly in the early years of this set up and what provision can be made for that?

So many things can happen: relationships can change things, new job opportunities, existing job disappearing and the need to move to get another, decision to take a course of study in order to change career. I moved endlessly while I was young in pursuit of a particular career (probably why I now refuse to move at all!), not that I minded at the time except for some of the more nightmarish bedsits and shared accommodation but while I longed to buy a decent place of my own, in fact until a certain point even if I could have afforded to buy doing so would have destroyed my career ambitions.

I know there is no easy answer to the accommodation problem.

macbrains
Posts: 10
Joined: November 4th, 2016, 10:05 am

Re: Retirement property thoughts

Postby macbrains » January 12th, 2017, 8:18 am

Yes, very valid points which are currently under discussion! I guess the ownership of the flat would be relevant here, in that if it was my son's (or a large portion of it was) and he wanted to move, that would be more complex in that it would probably need to be sold to release his capital.

Whereas if it was mostly ours then we could always let it out as an option.

Rob

saechunu
Posts: 20
Joined: December 14th, 2016, 5:46 pm

Re: Retirement property thoughts

Postby saechunu » January 12th, 2017, 8:51 am

macbrains wrote:Whereas if it was mostly ours then we could always let it out as an option.


Certainly possible although the prospect of becoming a remote landlord in perhaps your 70s, with the hassle that might entail, may not be so attractive. Good to be considering these what-ifs now rather than later.


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