Question: I am a pensioner aged 69 living in a flat in London worth £400,000, with 91 years left on the lease. Fifteen years ago I took out a loan of £120,000 that I have to repay by June next year. When I took out the loan I planned to sell the flat, repay the money and move abroad.
My plans have since changed and I have no way of paying back the loan without selling the flat first. Now a close friend has said he will buy the flat and let me live there rent-free for life. He will pay me £250,000, enough to pay off my loan and have cash to spare.
My main concerns are security of tenure and any tax implications. I am separated from my wife and have no direct descendants.
Answer: There are a number of ways to structure this deal. You have suggested the granting to you of a “lease for life”, which would enable you to remain in the property by virtue of the lease. You could also look into the possibility of shared ownership, which would mean that you retain a right of occupation as a partial freeholder.
If you sell the property to your friend in exchange for £250,000 and lease it at a nominal rent for the rest of your life, the lease could be treated as a settlement. This is because it has no fixed term and is terminated on a death. This would mean that you are a life tenant and your friend would be entitled to what is known as a reversionary interest in the property.
This has significant Inheritance Tax implications for both of you and you should seek professional tax advice.
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