Property Transfer to children and Equity Release

B_Bear

My mother transferred ownership of her house to me about 11 years ago. She is now 87 and I can foresee a time when she may need to move into a more manageable property such as a retirement apartment and/or (hopefully not) may need permanent care at fairly short notice. What are the options for funding of the above from the equity in the house? Presumably, 'equity release' is one option, although technically the house is now my 'second home'. The other is to sell the house (possibly at a low price if I need to do it quickly), with the risk of having to pay Capital Gains Tax (again as it will be my 'second home') which will reduce funds available for purchase or rental of a suitable 'retirement' home. I am 60 years of age, still working, and am not interesting in living in or renting out my mother's house if and when she moves out, although I would like to think I'll be able to realize some of its value upon her eventual demise, when I'm likely to be retired myself.

dunstonh

My mother transferred ownership of her house to me about 11 years ago.

Can I ask what the purpose of that was as there is no point transferring ownership if she still lives there as it doesnt save inheritance tax, it creates a potential of CGT on you and would still be included as an asset under the means test for care.

Options for funding include selling the house and investing the proceeds to provide an income or being an care annuity. renting out the house to provide an income or equity release to invest or buy an annuity. The latter is probably the most expensive option as you are effectively borrowing to invest. You would need the investments to pay for the interest on the debt as well as cover withdrawals for income. Whilst the debt would not need to be covered by the investments, when you look at the bottom line, its going to erode quicker than selling the property option. Also, it will not provide as much capital as selling up. How much income is needed for care provision isnt something you have mentioned. What sort of yield is likely?

CLAPTON

there is nothing 'technical ' about your ownership; you are the owner

at 60 you are unlikely to get a decent equity release deal
and yes will will be liable for cgt depending upon the numbers of course
does your mother or do you have other funds that could be used to fund a retirement apartment until the house is sold?

jamesd

There are lenders who will provide normal mortgages for places where relatives will live, NatWest is one. An option for you would be to take out a normal offset mortgage and leave the funds in the mortgage offset account until they are needed. This has the advantage of very low cost but the disadvantage of reducing the amount you could borrow for a property of your own if you wanted to move. if you're able to find it, an interest only offset mortgage is ideal for this because there's no need for capital repayments until after your mother no longer has any need for the house. There's also the option of drawing on the money gradually to pay for any assistance that she may need in the home, or for home improvements to extend the time that she can live there.

Immediate needs annuities are a common method of funding care extensive residential care. Ideally you'd know all of her financial resources and price out the cost of a plan that might be needed to top up her income level to that required for care. People typically live for relatively short times, a few years, when they need very extensive care but the annuity provides long term protection for the exceptions. If you and/or other family members and her other assets could provide some of the costs there's a good chance that doing this instead of using only an annuity would leave more money to be inherited.

Loughton_Monkey

Offset mortgages are generally only available up to retirement age.

B_Bear

Thanks to DunstonH for that advice. I often wonder whether we made the right decision re mother's house, but it was around 11 years ago when there was a worry about local authorities 'confiscating' elderly persons' property to meet the cost of care. I'm not as worried about the property being treated as an asset by the means test as it is longer than usually quoted 7 years. Looks like the options I wasn't aware of would be offset mortgage or care annuity. Thanks to JamesD for that advice, but I also note Loughton Monkey's comment re offset mortgage & retirement (does this mean 65 for a man?).

dunstonh

I'm not as worried about the property being treated as an asset by the means test as it is longer than usually quoted 7 years.

7 years is to do with inheritance tax. Not the means test. In respect of that the 7 year rule, it wouldn't apply as the "gift" was with reservation in that she was still benefiting from it and therefore the 7 year clock never started. In respect of local authority care there is no timescale on how far they can go back. It is the intention that matters, even if it was 20 years earlier.