You can buy your parents' house from them but there can be issues if you are buying it below market value as there may be tax and other implications for you and your parents. If you plan to buy the house outright, the purchase will continue just like any other purchase. If you intend to purchase with a mortgage you should ensure the lender is happy as some will not lend if the parties are related.
But if your parents plan to sell the house to you for under market value, they will essentially "gift you" the rest of the property. For example, your parents' house is worth £200,000 and they sell it to you for £150,000. This means they are gifting you £50,000.
You should always seek legal advice in relation to a potential under-value as there are further implications to be aware of which your lawyer can discuss with you. One of the areas your lawyer will discuss is the implications of a transfer at under-value should your parents become bankrupt. The Official Receiver has powers to overturn transactions at under-value in certain situations and you should take legal advice in this area to understand the potential implications, should they arise.
In addition, even though your parents may own their home, there may be some homes that cannot be gifted because of restrictions, such as retirement homes. Your lawyer will advise you on any restrictions when they check the title to the property.
With any transaction you should be aware of tax implications for both you and your parents. There may be Inheritance Tax (IHT) and Capital Gains Tax to take into consideration, together with Stamp Duty Land Tax. You should also be aware that if you are purchasing your parents' property and the consideration is over the current Stamp Duty Land Tax threshold, and the property is not going to be your main residence, you will pay the increased Stamp Duty Land Tax as the property will be classed as an investment/second home.
If you wish to proceed with the purchase you should instruct a lawyer and your parents should also instruct a separate lawyer to avoid any conflicts of interest. Both lawyers will advise you independently. Even though you may be familiar with the property you should always consider submitting searches to protect your interests. You may not necessarily know of planning permissions in the area which may affect the property in the future.
It is also prudent to undertake a survey on the property to protect your interests.
Whilst you may wish to purchase your parents' property it is advisable to sit together and discuss what will happen as part of the transaction. If for example you intend to purchase with a mortgage and the property is down valued because further works are required, meaning you want to renegotiate the price, this can be stressful and emotional for all parties.
There are some other options for your parents to consider, including signing over their entire property to you completely. If they own their own home, free from mortgage, they can give it to their children at any time, even if they still live in it.
Doing this would avoid any Stamp Duty Land Tax bill and it would also be exempt from Inheritance Tax too, providing your parents stay alive for at least seven years after the gift. Making a gift like this could have positive tax benefits for you as their child both now, in saving Stamp Duty Land Tax, but also in future by saving Inheritance Tax too.
Implications of Transferring a Property
Before your parents sign their entire property over to you, they should think very carefully about the implications for them. If they completely sign over the property to you, they no longer legally own it and have no rights to any income from that property. Their lawyer will advise them of any risks and implications of a transfer to ensure they fully understand their position.
If they are still going to live in the property after they gift it to you, they won't get the benefit of the property being free from Inheritance Tax, unless they pay you rent at the market rate. If that happens, you'll have to pay Income Tax on that income.
From your parents' perspective, this is a risky move as you will hold all the cards financially. If you and your parents fall out, you could evict them from their property because you are the legal owner. On top of that, if you were married and subsequently divorce, the property could be treated as part of your assets and potentially shared with your ex-spouse, leaving your parents without a property to live in.
So, the risks for your parents are very real.
Your parents may also be accused of Deliberate Deprivation of Assets if they gift you their home. Some people have done this to avoid paying for the cost of their care as they grow older. A Local Authority can, by law, transfer the property back into your parents' names if they decide the transfer has happened to avoid care home fees. The value of the property will then be included when deciding whether funding for care is given.
The final concern is if you die before your parents do. If this happens and they are living in the property, the house will pass to whoever you left it to in your Will and they will have to move out. If you proceed with the transfer/purchase of the property you should consider revising your Will if you wish to protect your parents and enable them to continue to live in the property.
You can see that this is complex area and you should seek specialist legal advice before gifting a percentage or all of a property away.