Retirement finance, sell house to children?

[Felinefancier]

I plan to retire when I turn sixty next year. I am divorced with no Pension.

My long term strategy of
investing in property instead has been successful.
I've worked hard and now own four properties, two of which are mortgage free as is my own home.

My plan is to live off the net income from two of the rental properties and sell the unmortgaged ones to my children - aged 27
& 29. (They would never be able to afford houses otherwise. Both are currently single and child free but in relatively low paying, insecure employment.)

I will 'lend' them the money to buy the houses in the form of interest only mortgages. They will pay interest to me until I die (interest rates reviewed every five years) and then they will inherit the houses. I will register the mortgages at the Land Registry so that if they get married or cohabit, my interests are protected.

I have 'run the numbers' with both of them and they can afford their mortgages. Both houses are three bedroomed so they can get lodgers if necessary.

If they choose to sell the houses they will repay the mortgages and I can use the money to buy something else.

My estate is left to them in equal shares in my will and I have no other dependants.

Has anyone got any experience of doing anything like this? Are there any potential pitfalls that I haven't considered, eg inheritance tax? Is there a more tax efficient way to arrange my affairs?

As they own the house it's they will be responsible for all repairs and upkeep. They will also insure the houses with me listed as a beneficiary on the insurance policy (in my capacity as the mortgage lender.)

I'm happy for them to pay off the loans faster if they want to I can then invest the money elsewhere.

If at any point then became unable to pay the mortgages I would give them a mortgage holiday (like any other lender) and roll up the capital and interest until such time that they could afford the repayments.

Ultimately they will get the house when I die and will only have to pay inheritance tax on the outstanding mortgage koma this scheme is simply to give me an income while I'm alive.

See a property solicitor for some advice on your particular situation. Ask if you can put the property into some sort of trust so it stays in your family. This way your daughters are less likely to lose it as part of a divorce. What you want to do is to future proof your assets similar to what millionaires do with their multiple properties.

Someone further up suggested selling at a below market rate but mentioned that your dd's aren't eligible for mortgages. Then the plan should be for them to switch jobs to a higher paid industry so they can get a mortgage. They should spend this year improving their employment prospects. A Zero hours contract job during these hard economic times isn't ideal. The prices are going up rapidly, so they need to ensure they are earning enough to pay for their lifestyle plus a future house.

Then the plan should be for them to switch jobs to a higher paid industry so they can get a mortgage. They should spend this year improving their employment prospects.

Agree with this, there is a skills shortage at the moment in many industries. I know a 31 year old with 3 children who left school at 16, is on the path to be a midwife, first step was a job as an assistant in maternity unit, now on a 12 month access course and then onto a midwifery degree. I’m so proud of her!
If your Dc can find something they are really interested in doing, don’t let lack of qualifications put them off going for it.

What if your children want/need to move house? It sounds like they're stuck there until you die.

Op has already said that if they sell up they repay the loan. As you would if you had a mortgage.

CGT will be calculated based on the market rate regardless of how much you “sell” to your DC for as they are connected parties.

I wonder if this would get caught by the gift with reservation of benefit rule meaning the houses would still be considered part of your estate even after 7 years have passed. You are transferring them to your children but you still have a level of control with the mortgage and getting income from the property via interest on the loan. I could be wrong but I’d definitely explore this with a tax advisor.

I understand what you are trying to do for your children, do they definitely want this though? I’d hate to be indebted to my parents for the rest of their lives in this way.

What if your children want/need to move house? It sounds like they're stuck there until you die.
The way we've done it is put a charge on their properties. One has already moved, the charge gets put onto the new property.

Yes it would be worth considering putting the properties into a trust with your daughters as beneficiaries . That way the ownership of the properties wouldn’t change on you passing and they wouldn’t have to pay a significant iht bill. Remember that iht is payable in 6 months following registration of probate and houses are relatively illiquid assets..

But obviously as pps have said it will be worth taking financial advice on all of this. Good luck!!

My mum has in the past done something similar to what you are wanting to do. Setting up a trust properly is expensive but it’s an option. One of the things you might want to consider to protect more of the equity should one of your children get married whilst owning the property is to stipulate that if the property were to be sold then you add an additional % of the current value to be added of what’s to be repaid upon the sale. Of course you don’t have to take the money from your children but it does help protect a little in the divorce circumstance. There are some really good solicitors who specialise in this and whilst it’s an initial outlay, their advice could potentially save you thousands in the long run.