Buying someone out of their share in a house

[Daphnetheferret]

I hope this is the right place to post, I wasn't sure whether to put it here or in Property.

DH and I live in a house that is currently mortgage free. He bought it before we met and owns it jointly with his Father. At the time his father's share was supposed to be an advance on his inheritance in order to help him out when he was made redundant, the agreement was that the will would reflect that he had received this money so his sister would get more.

This was a long time ago. There was never any agreement to pay rent but equally his father has not contributed to upkeep or improvements made to the house which have been significant.

I live in the house as DH's wife but don't have my name on the property.

SiL is now experiencing difficulties and FiL obviously wants to help her out too. He has asked if we can buy him out of his share in the house to enable him to help her buy a house.

So I am looking for advice on how we do this both in terms of practicalities and how we do it fairly. I have never purchased a house so don't know much about the practicalities.

My savings aren't enough to buy him out so we would need a mortgage. I don't know what we would be able to borrow or for how long.

You have benefitted from living in house for a long time without paying rent to fil. I would just get 3 local estate agents around and ask for a realistic selling price for immediate sale, not inflated price because they expect a buyer to make an offer that is lower. In general mortgage companies would offer up to 4 times joint income, If no debts. Mortgage rates are super low right now so a good time to get a 10 year fixed rate mortgage. It sounds like fil is wanting to see both his children set up in a home before he died. Make sure if you are going to be paying back mortgage your name is also on mortgage deeds.

There’s no CGT on proceeds from disposal of your principal private residence

@ForensicAccountant it’s not his principal private residence though - he’s never lived there.

I know in some cases you can nominate a PPR that you don’t live in - but I thought that was pretty limited? e.g. if bought out of a house some years following a divorce, and only if your former spouse continues to reside there.

Does her FIL have any grounds to nominate and avoid CGT?

Suggesting that we simply pay back what he put in might be a better option.

With no interest or capital appreciation?

It's clear why you would prefer that. How fair do you think it would be, for FiL to have earned nothing on his investment.

How much interest have you saved due to having this loan? How much could he have earned in rent for that period? What could he have earned in another investment ?

The distribution of money does funny things to people, especially family money.

Lots of comments saying you’ve benefited from this money for a long period of time, and I understand that. However, the goal posts have changed, and that must be very frustrating.
Has FIL acknowledged that he’s now changed his mind, or is he misremembering the original agreement?
Is his intention to now become co owner with the SIL in the exact same way as with your husband?

IDK why PPs keep talking about the house being factored into the estate and OP and her DH potentially having to pay SIL back. As OP has said, this is a non-issue - the house will automatically revert to DH as owner in common upon FIL’s death and no-one else would have any claim to it!

If FIL doesn’t have much more money (which I’m guessing he doesn’t, given this issue has come up), then OP and her DH would effectively be giving up their inheritance and taking out a mortgage so that SIL instead receives one. This would be pretty much unchallengeable following FIL’s death without DH taking SIL to court.

This needs careful handling as I know I certainly wouldn’t get myself into debt to give an in-law my inheritance...

I think you probably need to see a financial adviser who can give you the options and then lay that out to FIL, in terms of this is what can happen if we do X re capital gains, assets for care home fees etc etc.

Plus it is an impartial person who has no skin in the game.

Also as your Dh is self employed the mortgage rate will probably be slightly higher than normal as he is seen as more of a risk. My Dh is self employed. We had the same issue.

I can highly recommend London and Country for mortgage advice, it is a company recommended by moneysavingexpert too. Completely free of charge.

@caringcarer thanks that is useful advice and what we will do. Particularly the bit about asking the agents to price it to sell.

@ForensicAccountant FIL has never lived in the house, he owns another house that he lives in. He has moved since our house was purchased but he has always owned a house separately to our house.

@FinallyHere - no that is not what I mean, when I posted that I was actually searching on line to see what kind of return he would have got on the money if it had been invested in an ISA which is what he would have done with it if he hadn't bought into the house. That would likely still be less but if we can't afford to buy him out at market value it might be an option that would allow him to help SIL out without requiring DH to sell his long term home.

@SW18Life FIL acknowledges that this is not what was originally planned and that it could be challenging for us.

@Notthetoothfairy correct, the house is held as joint tenants so would revert to DH with no IHT and no chance of SIL making a claim on it.

The original plan was that SIL would get a greater share of the estate to compensate her. Her and her partner were already on the property ladder when FIL helped DH out, they had traded up a couple of times and owned a very nice cottage in a desirable area.

FIL says he has some more money, some of which he doesn't want to use because it is in a fixed term ISA (I assume that he also wants to leave himself a cushion of savings which is sensible). He doesn't think he can afford to buy SIL a house outright even with the proceeds from our house, he thinks she will need to get a small mortgage, but whether she will be able to get one I don't know.

If when FIL and MIL both pass there is nothing left due to care home fees or just due to their living expenses then that is fair enough, we aren't the type to count on an inheritance and have been encouraging them to enjoy themselves for years. However I can completely understand that it could be very damaging to the relationship between DH and SIL if there was a situation where there is nothing left and we have debt but SIL inherits a big chunk of equity in her own house.

@Seracursoren a financial advisor might be a good idea. I'm not convinced that FIL will be able to do what he would like to, and I am concerned that his investment could be at risk if SIL stays with her partner.

Thanks for the recommendation of the broker I will have a look. I want to ask a broker whether we would be better having the mortgage in just my name or jointly given that DH is self employed. Had we been planning to move he probably wouldn't have given up employment, or would have got himself a job to help with the costs and getting a mortgage but I don't think we have time for him to get a job and for it to make a difference.

So to update, DH went to see FIL to let him know what progress we have made and the discussion puts a different spin on things.

FIL did not realise that he would have to pay CGT. This could be a barrier to the whole plan as he is very reluctant to pay a big chunk of cash to the taxman when currently the house would revert to DH upon his death free from any CGT or IHT.

Also he told us that he has already given SIL an equivalent amount of money and this has been spent. We were under the impression that she had received some small sums but that the plan was to even things up in the will. SIL has nothing left to show for this money, she no longer owns a house and her partner has cashed in his pensions to access cash in the past.

Further SIL is not leaving her partner as she told us just before FIL approached us with this plan. She actually wants FIL to buy the rental place they are in now as the landlord wants to sell and they don't want to move. Realistically this won't be possible, it is worth more than our house being detatched, having a garage and drive and neighbouring open fields.

DH is now quite stressed about the whole thing.

I'm worried about whether FIL is really comfortable with all this, or whether he is hoping that we will say no and "take the flack" as it were. I think he is under pressure from MIL who will want him to "just sort it out" as well as having the pressure of SIL being upset.

I'm concerned about the fallout if we can't sort something out, this has the potential to cause a fairly nasty rift.

Blimey. SIL's a cf isn't she? Perhaps FIL and MIL can sell their own house if they want to bankroll SIL...

@titchy

Blimey. SIL's a cf isn't she? Perhaps FIL and MIL can sell their own house if they want to bankroll SIL...

This AGAIN

So SIL had had the equivalent of what your DH has had (although not quite as half your house is in FIL name) and she wants more. On what planet is that fair?

FIL needs to put on his 'big boy pants' and tell her NO!

Having read the updates would be a bit fat NO from me. She wants your DH to give her his share of FIL’s inheritance because she spent hers and now wants to buy her rental property to avoid the inconvenience of moving? Thanks for your interesting suggestion SIL, we’ll get back to you on that.

We had an estate agent to value the property today, it is worth more than we thought, which will make buying FIL out more difficult.

The agent said that there is a real scramble for properties at the moment due to the stamp duty holiday and he reckons that prices could come down by 10% when the holiday ends.

Great!

I just don't know how to deal with all this without looking like an unsympathetic money grabbing bitch.