buying my parents house advice needed

bexlou79

Hi all,

My parents are at retirement age & are in serious debt of £33,000 the majority of the debt is secured against the house which they own outright and is valued at approx £250,000.
We have spoken to a financial adviser about how to get them out of debt so they can both retire and enjoy it. They have defaults against them now and are in credit management with the main loan lender so their options are limited.

We have looked at equity release & them downsizing but the other option that has arisen is me & my 2 sisters buying the house from them. My parents want £100,000 for the house and the mortgage has been approved for this now. My parents are going to contribute to the repayments for as long as they are alive. If they need to eventually downsize we would sell the house & buy them another with the proceeds which would again be owned by us 3 daughters.

We are all in our early 30's and have discussed in detail all the problems that would crop up in the future with this plan including the amount of future credit we can get until the mortgage is paid & if one of us is unable to make their share of payments etc but one main concern is if one or both of my parents need to go into a care home will the government be able to make us sell the house to cover the costs? Our financial advisor thinks not as its obvious we have bought the house to help them pay debts off and not to avoid paying nursing home costs and he thinks as long as they dont need to go into care in the next 6 months there shouldnt be any problems?
They are both still in good health at the moment so hopefully we wont have to think about nursing homes for a few years but is this correct?

Any advice on this is greatly appreciated
Becky

getmore4less

Personaly I think they are probably best thinking about the final move now.

It is a lot easier when in good health and have plenty of time.

Deprivation of assets is a big risk here selling the house for £150k below market value.

If they have been strugling to make ends meet with no mortgage resulting in debt how are they going to manage in the future.

I would have a good look at why this situation has come about and how to stop it happening again.

Another option rather than getting a mortage on the house is between you you tackle their debts

owning the house and letting them live there has other issues like potential CGT.

onlyroz

You need to look up "deprivation of assets". Surely it would be more sensible for them to downsize?

pineapple

Deprivation of assets can apply for longer than 6 months.
http://www.ageuk.org.uk/Documents/EN-GB/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true
Go to the experts CareAware for free advice.
http://www.careaware.co.uk/

Thrugelmir

getmore4less wrote: »

owning the house and letting them live there has other issues like potential CGT.

If the house is bought at under value then this could create an unwanted CGT bill. As the amount paid will represent the purchase price.

When the property is sold any gain above this (with any annual allowance being taken into account) will be taxable.

paddedjohn

are you or any of your sisters married? what if one of you divorced and had to split the assets, ie, a third share of the property.

bexlou79

Actually we are buying the house for the market value of £250,000 but the extra is being covered as a gifted deposit, hence the mortgage is only needed for the £100,000. Financial adviser still thinks with this being the case & the fact that if financial records are looked at its obvious we have done this to help my parents out of severe debt & the possibility of loosing the house so fingers crossed if we do get investigated if/when my parents need to go into a care home we will come out unscathed.

Thrugelmir

bexlou79 wrote: »

Actually we are buying the house for the market value of £250,000 but the extra is being covered as a gifted deposit, hence the mortgage is only needed for the £100,000.

Then any money paid to you by your parents will be treated as rent and taxed accordingly.

To claim nursing care costs there'll be a thorough review. So the property sale will come to light. This rule has been in force many many years so the authorities will be on the outlook for avoidance.

Annisele

bexlou79 wrote: »

Actually we are buying the house for the market value of £250,000 but the extra is being covered as a gifted deposit, hence the mortgage is only needed for the £100,000. Financial adviser still thinks with this being the case & the fact that if financial records are looked at its obvious we have done this to help my parents out of severe debt

I must be missing something here.

Your parents are in severe debt, so the answer is for them to gift £150,000 to their children?

somethingcorporate

bexlou79 wrote: »

Actually we are buying the house for the market value of £250,000 but the extra is being covered as a gifted deposit, hence the mortgage is only needed for the £100,000. Financial adviser still thinks with this being the case & the fact that if financial records are looked at its obvious we have done this to help my parents out of severe debt & the possibility of loosing the house so fingers crossed if we do get investigated if/when my parents need to go into a care home we will come out unscathed.

Sounds tenuous at best. You would never be able to argue that is the case given your parents are handing over £150k for gratis.

They should sell up and downsize and you 3 should stop trying to be so greedy at your parents expense. The trauma you will cause them in later life is going to be at a time when they are enjoying their retirement and you could be putting them in an impossible position.