Tax implications for buying house for parents

sloughflint

JohnnieW wrote: »

As insured said, the house could be repurchased by your inlaws once their own house is sold.

This is very intriguing.

I understand the tax and protection of all parties side of things with a trust but I don't understand how this would work from a deprivation of assets point of view if care was ever required by one or both of the inlaws. I have read that there are no time limits on this.
They would have parted with a lot of cash purchasing something to be excluded from means testing calculations. Surely questions would be asked? How is this more effective than Wills?

JohnnieW

sloughflint wrote: »

This is very intriguing.

I understand the tax and protection of all parties side of things with a trust but I don't understand how this would work from a deprivation of assets point of view if care was ever required by one or both of the inlaws. I have read that there are no time limits on this.
They would have parted with a lot of cash purchasing something to be excluded from means testing calculations. Surely questions would be asked? How is this more effective than Wills?

Once the inlaws repurchase the bungalow, it is back in their own estate both for IHT and means tested benefits etc. Just like it would have been if they had sold the house themselves and bought the bungalow.
I have not discussed care home fee planning from that point of view on this thread as it really is a separate issue, and should be kept out of this discussion.
The problem is that you don't know how long the original house will take to sell, and if you put it in inlaws name, then they have two houses to be taken into consideration for means tested benefits, care homes etc if one or other dies or needs care.
It is unlikely OP will get 100% mortgage, and there will inevitably be equity in the bunglaw which will be available for assessment.
Keeping bungalow in their own name would solve the above problem, but create the CGT problem.
A trust would solve both of the problems, but there would be a cost involved.
It is up to the OP to form a view as to the likelihood of the parents dying or needing care before their house is sold, and considering how long the house will take to sell and the subsequent price rise of the bunglaw. He must then weigh this up against the cost of setting up the trust.

sloughflint

JohnnieW wrote: »

have not discussed care home fee planning from that point of view on this thread as it really is a separate issue, and should be kept out of this discussion.

Not at all.

M271 wrote: »

My father in law has suddenly been taken ill and needs to move and live in a bungalow, my mother in law still lives with him. They are both in their mid 70's.

They will put their house on the market but this could take some time to sell.

If my wife (their daughter) and I buy quickly, with mortgage, the bungalow in our names and then her parents pay us back (pay off the mortgage) when their house sells but the bungalow stays in our name, what are the tax implications when were to sell the bungalow in the future ? (probably after they have died or gone into a home).

After the first house is sold and the mortgage is repaid, the suggestion made by the OP was for the new property to stay in the OP's name.

The fact that the OP has already stated that the father in law is elderly and not in the best of health makes the issue of care fees and deliberate deprivation of assets very relevant.

If after the first house is sold and the second property is owned by the daughter and son in law (or a trust) the fact remains that the size of the parents' estate will have been reduced. This surely will lead to a local authority questioning the motivation for doing so and a good reason would be needed to accept the transaction?

The only possible tax issue I can see here is CGT. But even if the property takes time to sell, CGT won't be an issue in a falling market. And in any case each of the parents has an annual allowance of 10,100 which could be set against any potential rise in the value of the house.

Surely it would make sense for the daughter and son in law to simply lend the parents money in the short term (which in any case wouldn't be means tested) and for the property to be kept in the parents’ names? If they own it as tenants in common and each made wills incorporating a property protection trust, the property would be safeguarded from means testing.

I just can’t see the justification for the expense of setting up a short term trust here.

localhero

JohnnieW wrote:

If you read the post insured was suggesting inlaws purchase property back from the trust when their own property is sold.

The original post by the OP says this:

M271 wrote:

her parents pay us back (pay off the motgage) when their house sells but the bungalow stays in our name.

Perhaps the OP should clarify what the in laws are seeking to achieve, because if it is to shelter property from care fees, this will be one of the first things the solicitor will be recording on the file and this could come back to haunt them.

sloughflint

JohnnieW wrote: »

if you put it in inlaws name, then they have two houses to be taken into consideration for means tested benefits, care homes etc if one or other dies or needs care.
It is unlikely OP will get 100% mortgage, and there will inevitably be equity in the bunglaw which will be available for assessment.
Keeping bungalow in their own name would solve the above problem, but create the CGT problem.

Coming back to this,I think it needs to be made clear to the OP or anyone else considering doing this, that having equity in the bungalow is not a problem.

The only equity in the property will be the deposit on the property in the short term. The inlaws would either use their own savings or borrow more from the OP to pay this deposit.

The sums that would be assessed would be no greater than at the moment and potentially less with a PPT.

JohnnieW wrote: »

Simpler - yes. Cheaper - yes. More effective - [STRIKE]definitely not.[/STRIKE]

Please consider the facts carefully before writing with such authority or agreeing with other posters.

Wills written by a suitably qualified professional and a decent loan document seem to be all that is required here.

Snowbird

I read this thread with interest as I am in a similar position with a family member. I purchased a property in my own name rather than the relatives name. I did this many years ago and did not take advice about it. I realise now that I should have done this, as there is a potential problem if I predecease the relative.
Luckily capital gains tax will not be a problem for me because of when I bought the house. I have now been to see a solicitor and an accountant, so it is sorted now.

I have been following this thread with interest, and I noticed Sloughflint that you have made several posts, deleted them, altered them over the course of the thread, so I am assuming you also have an interest in purchasing a property for a relative as you have taken a great deal of time over it.

JonnieW and insured have spoken with some authority on this, and if you read their replies, they are both advising the OP to seek specialist help.

sloughflint wrote: »

Please consider the facts carefully before writing with such authority or agreeing with other posters.

QUOTE]

Jonnie has considered the facts very carefully before giving advice, which incidentally was very similar to the professional advice that I was given. He has outlined various alternatives for the op to consider.

It is not really clear here the full facts surrounding the Ops family – and why should they post these details – but you seem, to have decided the “right” way to deal with it, as this is the cheapest. Cheapest and quickest is not always what is best, and that is the point that some of these posters are saying.

You cannot possibly be sure that "wills written by a suitably qualified professional and a decent loan document" are all that are required here, and you shoud consider carefully before you give such sweeping advice.

sloughflint

Snowbird wrote: »

which incidentally was very similar to the professional advice that I was given.

LOL. So it must be right then.

Snowbird wrote: »

but you seem, to have decided the “right” way to deal with it, as this is the cheapest.

This assumption of yours indicates that you have completely missed the point.

Snowbird wrote: »

Jonnie has considered the facts very carefully

Unfortunately not carefully enough. And nor have you.
Perhaps you should try to grasp the issues here because your bizarre outburst and the fact that three posters are now defending this daft idea are ridiculous.