Buyin house for mother to live in

Techno

Longish post so please forgive me.
We own our own house and the bungalow next door has come up for sale. What we would like to do/are considering is to buy this bungalow for my OH's mother, she 'sells' us her bungalow which is worth less than the one she would move in to (so she ends up with 4/5 of the new bungalow and we end up with 1/5) and then rent out her bungalow (which will then be ours) - possibly to my mother who is on housing benefit. So my questions are:

1. would we have to go through a formal sale for the transfer of my MiL's bungalow to us?
2. Would we be better increasing the mortgage on our house (which is nearly paid off) or taking out a seperate mortgage
3. Can my mother claim housing benefit if she is renting off me/my OH

Many thanks for your help as always
Techno
xx

Owain_Moneysaver

1. you have to do a conveyance to effect the transfer of ownership, and selling below market value may be treated as deprivation of capital if she is subsequently assessed for care home fees.

2. a separate mortgage would be a buy to let mortgage. If you did not keep up the payments for any reason, or were made bankrupt, your M-i-L could be evicted. This might be more of an issue if you run your own business or have sizeable other debts.

3. no, and you will have to pay tax on any rental income

RAS

Owain_Moneysaver wrote: »

3. no,

It is possible if you can prove that it is a fully commercial let.

However you would be wise to check up what the likely LHA is going to be for your area. Mother is likely to be granted the rate for a one room let and this is being cut drastically next April.

Charge her less than the commercial rent and it is a contrived tenancy and she cannot claim LHA.

If the LHA for a one room property is less than the commercial rent she has to make up the difference. Could she afford that?

And you can claim tax relief on the interest only IF you have a mortgage on the rental property.

Wee_Willy_Harris

RAS wrote: »

It is possible if you can prove that it is a fully commercial let.

However you would be wise to check up what the likely LHA is going to be for your area. Mother is likely to be granted the rate for a one room let and this is being cut drastically next April.

Charge her less than the commercial rent and it is a contrived tenancy and she cannot claim LHA.

If the LHA for a one room property is less than the commercial rent she has to make up the difference. Could she afford that?

And you can claim tax relief on the interest only IF you have a mortgage on the rental property.

Note: According to OP she would still have a substantial financial interest in the property she was "renting". Under the circs outlined in the OP, I would be very, very surprised if HB was paid on a property part owned by the tenant and part owned by a close relative.

RAS

Wee_Willy_Harris wrote: »

Note: According to OP she would still have a substantial financial interest in the property she was "renting". Under the circs outlined in the OP, I would be very, very surprised if HB was paid on a property part owned by the tenant and part owned by a close relative.

I may have read this wrong but there are three properties

1 Op's house - lived in by OP with possible mortgage
2. bungalow next door - MIl to live there and to be bought jointly by MIL and OP
3. MILs old bungalow - to be owned by OP and occupied by mother.

As far as i can see mother would have no interest in any the properties.

tawse57

1. I believe it is illegal for housing benefit to be paid by the state so that one relative can live in the rented accomodation of another relative. This is considered fraud, I believe, and has some tought financial fines and even jail times.

I think I read it right that your Mum would be effectively renting the house from you using housing benefit? Or did I get that wrong?


2. You need to think ahead to nursing care if/when your Mum and Mum-in-law cannot look after each other.

I have heard of numerous stories of 'loving' sons, daughters and their other halves cheating a parent out of a home and then kicking them out on the street. Obviously, I am not suggesting that this is the case here but I am trying to figure out what ownership, and hence security, your mother would have?

What happens if you and your SO divorce? What happens if you cannot keep up payments on the mortgage? What happens if interest rates shoot up to 10%? What happens if you become ill and cannot work?

RAS

tawse

You are wrong.

It is perfectly legal for a member of family to rent from another family member. Happemns all the time. But you need to show that the property could have been rented to someone else and it is a proper commercial let - like you evict on non-payment of rent.

Paul_the_Painter

2 issues, one involving buying the house for MIL, the other for renting to Mother.

Issues that you face with MIK living next door (you brave thing!). If you buy as tenants in common, you can't sell the house without her agreement, and the proportion each side owns are defined. The issue of divorce leading to potentially forced sale of the house does not arrise, however whenever it is sold the other party will be entitled to their share. You need to define at the start who pays how much of the bills for the house, including maintenance. 2 schools of thought on that a.) Both parties will benefit from maintenance, decorating, repairs etc, so bills should be split. b.) son and daughter in-law are paying mortgage payments, from which they are not currently benefiting, and giving MIL a nicer place to live - so MIL should pay all maintenace.

On buying MIL place for mother to move into - you have a whole new set of issues, you have to keep in mind that housing benefit rules can be changed. I would in your mind think of it as a totally separate transaction, with a different set of reasons attached to it.

Also how will your mother feel? Be careful of her feeling a bit second class "Well this place wasn't good enough for her, but apparantly it's good enough for me/She needed to be closer to them, but apparantly they think I'm alright in the place that was too far away for her" Doing something you feel is lovely for her, may lead to those sorts of thoughts, despite the fact you are intending to move to a nicer/closer/better place than she currently lives in. If she stayed where she was she would never have had those thoughts.

Techno

Thank you everyone - we all live relatively close (within a mile). My MiL (who is lovely so no problem living next door) would sign her bungalow across to us so the full value of her current bungalow (let's call it Bungalow 2) would be her share of Bungalow 1 (the house next door to us) with us funding the rest (approx 4/5 MiL's and 1/5 ours) - no housing benefit involved. Repairs and any increase in value would be shared on a 4/5 - 1/5 basis so no deprivation of assets.

My mother currently lives in a flat and would love my MiL's bungalow (so no problem feeling 2nd class) but claims HB. Now for us to afford this we really need to rent out Bungalow 2 as much as possible to someone and my mum seemed the ideal person. It would all have to be 'above board' as I work for the local authority!!! A further 'complication' is that my mum's friend who lives in the flat next door (male) might want to share the bungalow - not as a couple but as friends - both claim housing benefit at the moment so how would that work . It may just be easier to rent to strangers:)

Wee_Willy_Harris

As you already work for the LA (and any "irregularities" may prove to be very serious for you) might I suggest you run your ideas past a senior member of the HB/LHA staff so that any potential pitfalls can be identified before it's too late.