buying house with mother

bobbyj_2

my sis in law wants to buy a house with her mum - prob a holiday home. They are both reasonably wealthy and prob both have upwards of nearly a million each. They'll be going halves on the purchase but I've said her mum is prob best 'gifting' her half to mitigate IHT. The house will be in the region of £500,000 so obviously £250,000 each. Surely my suggestion is correct as her mother is only early 60s so should be around another 7 yrs. Thanks.

p00hsticks

Why would the mother just want to hand over a quarter of a million pounds to her daughter ? It sounds as if that is a sizeable proportion of her wealth, and if she's only in her early sixties she could easily live for another thirty years, and might well need that money herself in the future .....

bobbyj_2

it's about a quarter of her wealth i'd say. From what i gather the mother isn't flash and her only luxury is a game of bingo every week! A house by the coast for holidays has always been an ambition of both of there's. So surely if the mother is never going to spend her wealth then she's better giving some away - well my thinking anyway.

p00hsticks

She might not be spending it now, but what is she using for income ? and what does she have sorted out in the way of pensions ? What if the worst came to the worst and she developed dementia in a few years time - as I said in my previous post, she could easily live another thirty years, and good care is expensive.

If I were in her shoes, I wouldn't be wanting to give 25% of my capital away just yet, even to my child.

bobbyj_2

I see your point but I think their thinking is the wealthy daughter would always support the mother - the daughter is a successful businesswoman from what I gather. My thinking is obviously to lessen the possible IHT bill. The mother has a substantial pension as well.

somethingcorporate

bobbyj wrote: »

I see your point but I think their thinking is the wealthy daughter would always support the mother - the daughter is a successful businesswoman from what I gather. My thinking is obviously to lessen the possible IHT bill. The mother has a substantial pension as well.

You need to consider 'deprivation of capital' if the mother is ever to require support of the state with regard to carehome fees. They have no limit as to how far back they can look.

I would seek professional advice about the best way to do it.

tradetime

I would seek professional advice about the best way to do it.

Agree with the last post, whether mother and daughter should or shouldn't enter into such an arrangement is irrelevant and debating that avoids the primary question. In such matters it is always worth paying a little for professional advice. My own personal thought would be that an arrangement called "Tenants in Common" might fit the bill, but please have them speak to a solicitor, it's not something you want to get wrong for the sake of a few quid.

Mary_Hartnell

If the sixty year old thinks she can have free holidays in the half of the property she has given away; theoretically she will be caught by the pre-owned asset test when it comes to the IHT calculation.

To give it away she really does need to make it clear and register the transaction with the land registry, then pay the market rate per visit.

Why not simply pay half the cost when buying the property in the name of the daughter and hope to live 7 years and avoid care home fees ?
(she has about a 1 in 3 chance of ending up in a care home BUT with her wealth she might well die before qualifying for a local authority subsidy.)

zzzLazyDaisy

Mary_Hartnell wrote: »

If the sixty year old thinks she can have free holidays in the half of the property she has given away; theoretically she will be caught by the pre-owned asset test when it comes to the IHT calculation.

This is only an issue if the 60gifts her half of the house to the daughter.

If she gifts her the cash with no strings attached and the daughter then chooses to buy a holiday home in her sole name, the only IHT issue is that the cash gift would be a PET and the 60yr old would need to survive by 7 years.

Care home fees are probably not going to be an issue in this situation because in order to show deprivation of capital the gift must have been made with the intention of avoiding care home fees in the future - in this case there are sufficient assets for the 60yr old to pay her own care home fees for some time, so by the time the local authority became involved with fees they would be unlikely to commence an investigation (although nothing is ever guaranteed).

Personally, though, I wouldn't do it. I am 55yrs, so not so far behind the older woman. It is true that I am nowehere near as wealthy as the 60yr old, but if money is tied up in property it is not accessible, and 60 is young these days. I would want to know that I can cash in my assets should I need to.

Another potential problem is if the daughter should divorce at some point in the future - the holiday home would form part of the assets, and the 60yr old would have no claim on it.

Primrose

It isn't just a question of trying to avoid Inheritance Tax. The need for Care Home support can come at any time. I've just heard of a 65 year old who has unexpectedly suffered a severe stroke and will undoubtedly need expensive care home residency when out of hospital. One can never bank on being in your 80's or 90's before care home raises its ugly head. However unlikely one might deem this to be, you can't afford to factor it out of your decision making.

blinko

i would seek an accountancty board for something like this, im sure there are ways but it needs to be strutured correctly