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Just a heads up for people looking to invest money. Kevin McCloud's company HAB have a 5 year investment bond open at 8% AER at present. Usual caveats ... capital at risk, not covered by protections cheme etc. Here: https://www.habhousing.co.uk/news/initial-crowd-fund-target-smashed-in-4-days Ferdinand
Hello All, Thank you for accepting me onto this amazing site. I am completely new to property development and my question is rather complex and specific. Much searching on google has not provided me with any answers and a local estate-planning solicitor has quoted me between 7-10 K upwards just for providing me with some initial advice which she warns might not even provide me with the answers I am looking for! I hope that someone, somewhere may be able to offer their advice for a little less! So here goes: My mother owns the freehold of a large semi-detached Georgian family townhouse at the end of a street in south west London (Richmond) with a spacious garden that wraps around the three sides of the house. My mother has recently been granted planning permission to build a new, architect-designed, semi-detached property at the side of the existing house. The result would be that 2 separate properties would be created: the existing house would become a terraced property (with a slightly smaller garden, making it in-line with all the other gardens in the street) and the new smaller property (with a small garden of its own). The idea behind the scheme is:To allow my mother to downsize by creating a bespoke, smaller property for her to live in, whilst maintaining the existing, larger family house as a rental property to provide her with a regular income (or even for potentially selling it at some stage if renting doesn't prove easy). The overall cost of the project would be far too great for her to carry out alone, mortgages aren't easy to acquire at her age (74) and equity release is very costly, therefore I have suggested that I would provide half the capital as a joint project to help her get her bespoke house built, and also as a potentially nice investment for me for the future. If she were to take the practically easier route, sell up and look for a 3-bedroom flat to downsize into in this area, it would probably cost a good deal more than building a new 4-bedroom house on her own land, so this project does seem to be a no-brainer from a financial point of view. I do, of course not wish to underestimate the problems associated with a new build. While I am very happy to be able to make this project feasible now by investing my own capital, even with the best will in the world, I could not afford to simply write-off my invested capital as a gift to my mother without some future hope of benefit. That is to say, I would hope to share in this project in the same way as I would if I were investing my capital in any other property. So, ideally, I would like to own half of the new property, equivalent to the amount I will invest : 50%. The problem as I see it, is rather complex: 1. My mother currently owns the freehold of the entire property, including of course the land (garden) upon which the new property would be built,. There is simply no way that I could afford to both buy the freehold of the garden from my mother as well as investing in the building project. 2. If I pay for half of the new build, and therefore own half of the new property together with my mother, I will still not own the land on which the new house is built, as that will still belong to my mother. Of course, she could gift the land to me....BUT.... 3. Since my mother would move out of the existing house and live in the new property, she would be seen to be "benefiting from it" by HMRC. This would create complications as regards inheritance tax. I am aware that gifts can be made from parents to children, and that my mother could gift me the freehold of the land, which would no longer be part of her estate after seven years. BUT, gifts from parents to children (ie. potentially exempt transfers) only work, tax-wise, if the parent will no longer benefit from that gift during the rest of their life, after the gift is made. In order for that gift of the land not to remain a "gift with reservation", she would have to pay me an annual rental fee at market rate. In that way, after her demise, the gift of the land would not be included as part of her estate and would not be subject to inheritance tax. I assume the annual rental she would have to pay me, to satisfy HMRC, would only need be equivalent to my initial capital investment, so 50% of the market rent? Would this model actually work, would it be legal and would HMRC look upon it kindly?The second issue relates to the existing house. Part of my investment would be used to refurbish it for rental purposes, and again, I would like, as an investor, to gain something in return, such as a share of the freehold, or a share of future rental income. Would this be feasible? The second way I can see of making this project work, should investing directly prove too complex for tax reasons, would be to set up a discretionary trust in my name, loan the capital to the trust, which would in turn provide a loan to my mother to finance half of the new build. After my mother's demise, from what I have read, the amount loaned to the trust would then get repaid to the trust and hence to me, without any inheritance tax implications. Does anyone have any idea about this method and whether it would be a better way to finance this project than my investing directly? If one does make an investment via a trust, does the value of ones investment increase with time in line with property prices, or would the trust, on my mother's demise, simply receive back the exact same amount it invested in the first place? I am guessing the latter, since the trust is only loaning the capital, and is therefore not a part owner of the property. I am not sure if I have explained this at all clearly! To conclude, the basic idea is to come up with a workable model which would enable this project to go ahead: provide a smaller, bespoke house for my mother to downsize to and a rental income from the existing property, whilst simultaneously enabling me, her son, to invest my capital wisely for the future, whilst also mitigating my mother’s estate's inheritance tax liability. Would be extremely grateful for your thoughts. There may be other tax issues I have not even considered? I should add that it is my parents intention to leave 50% of their estate to me (my father has already passed away) in any case.