What are legal and tax implications of swapping homes but not ownership?

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Q I own a house that I pay the mortgage on. My parents live just around the corner in a near-identical house, although it has a downstairs extension and a loft conversion. They own the property outright and have no mortgage. We would dearly love some more room in our house but rather than pay for a loft conversion we are exploring the possibility of swapping houses with my parents. They are in their late 70s and no longer need a house that size, so it would suit both parties perfectly.

We are not considering swapping ownership of the houses, simply swapping living arrangements. I would still pay the mortgage on my property and no other money or rent would be involved. If either party wanted to sell their property, then we would simply swap back in order to do this.

My question is whether this is legal and whether there are any other tax implications involved? I have not spoken to my mortgage lender yet but I’m assuming this would be the most likely stumbling block.

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A You definitely need to talk to your lender but it may not be the stumbling block you expect it to be. What is likely is that your lender will want your parents to sign an occupier consent form. Even though you are not transferring ownership of your home to your parents, by living in your home – which is perfectly legal – your parents can obtain a legal interest in the property despite not being the registered owners of it. For the lender, that would mean that in the event of your defaulting on your mortgage, it would not get vacant possession of the house in order to repossess it because your parents would have acquired the right to carry on living there.

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By signing the lender’s occupier consent form, your parents would waive that right and so agree to vacate the property in the event of a repossession. Your parents might want to consider getting you to do something similar, so that they can get their house back whenever they want. All of you should consider drawing up a written agreement to avoid possible misunderstandings in the future.

As far as tax implications go, because you are not transferring ownership of your properties, you do not need to worry about stamp duty land tax; nor does capital gains tax become an issue. But both you and your parents should register to pay council tax at the address of the house that will be your/their home.

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