New property in complex circumstances - parents or children names on deeds?

mikster_2

Hi, i'm new to the forums so hope this is the right / best place to post this topic. I'm asking the question on behalf of my family and my parent-in-laws (75 & 66) who are in a little bit of a dilemma which i will try to explain as best as possible.

18 months ago they were forced to sell their family home at a considerably reduced amount due to long-term maintenance issues. Since then they have resided in private rental accommodation with approximately £55,000 in savings.

My wife and I, and my wifes sister and brother-in-law have now managed to raise capital of £30,000 to assist with the purchase of a new home for them to reside in.

What we are not sure at this stage is who's name would it be best to put on the deeds?

If the house is put in my wife and her sisters names (or the 4 of us), will they be subject to any form of tax on the cash sum gifted to them to help purchase the residence?

If the house is put in my parent-in-laws names would the entire house be liable to "care costs" should both parents be placed into residential care in the future despite us having a large investment in it?

I understand that due to the value of their assets Inheritance Tax isn't an issue and i also believe as this would be their main home Capital Gains would not be either if it was "gifted" to us at a later date.

There may be other issues we haven't thought about as well so any advice on this matter would be greatly appreciated?

Savvy_Sue

Welcome. I would say this is something you should take proper advice on (the kind you pay for!), independently - ie your wife, her sister and your in-laws each have a different 'best way to do this', and you should have the disadvantages of each spelled out to you.

If I'm right in thinking that the house is owned mortgage free, then writing wills is very important, as is establishing who will be responsible for maintenance, and what happens if one party wants out of the arrangement.

And you also need to be aware that should any of those who own the house need to claim means tested benefits, then the house will be taken into account. This can cause problems if the value of the house can't be realised.

I know there can be issues if a house owned by parents is gifted to the children, but the parents continue to live in it without paying a reasonable rent. I don't know what the situation is if the house is purchased jointly and rent is / is not paid.

Also be aware that if you're dependent on the local authority funding your care home, the choices are very limited, in some cases to the point of dire. For that reason many of us hope never to be in that position.

Just had a thought: Age UK and Counsel and Care probably have useful information on their websites.

John_Pierpoint

Of I've understood correctly, there are two sisters who together with their spouses have raised funds to finance a home for the parents of the two sisters?
You could own the property as 4 individuals, probably "in common" and rent it to the elderly couple for a nominal rent BUT is it increased in value, there would be Capital Gains Tax (CGT) to pay when it was sold.
Have a word with a solicitor about the parents having a life interest (Interest in possession) trust. I think (not sure) that the trust can own a property free of Capital Gains Tax as it is the beneficiaries' principal private residence. When the beneficiaries have died their estates will be under the InHeritance Tax (IHT) threshold and I think (not sure) the zero rate of IHT levied on the trust will extinguish any Capital Gains (CGT) liability.
As the elderly couple don't own the property, there can be no question of the local authority charging it for care home fees.

There is a brand new Which? book called "Giving & Inheriting" that may be able to explain better than I can.

The downside to my suggestion is that a solicitor (who knows what he is doing) is likely to charge you several hundred pounds and may hide behind the "my client instructed me" defence if things don't work out or when the government changes the rules and you do not realise.
So you need to get your heads round the concept of "a trust" before you talk to anyone.
[The first time I came up against the concept, aged 21 with a dead father, I thought the lawyer was talking about "a bear trust" - I had not a clue about the gobledy gook he was talking].

I would get a small terraced property (ideally a bungalow) near the shops etc. if possible, rather than a flat, as flats come as leaseholds and that means more charges and hassle - but obviously you are restricted by your budget.

mikster_2

Thanks both for your quick responses.

Just to clarify, we have just had an offer accepted on a small terraced house near the shops (funnily enough) and are at the point of instructing our solicitor.

The house will be owned mortgage free and lived in by the parents rent free. The contributions are actually more in the region of £60,000 by the parents and £10,000 from each sister.

Initially we thought either the parents would own it or the sisters would own it, never actually crossed our minds all four could own it. If the sisters were to own the property the parents would make a cash gift to each of them before completion.

Our first priority is putting a permanent roof over their heads where they are happy to live and see out their days. But longer term the sisters obviously want to protect their investment as well as this extra funding has not been easy to come by and is not something that they can afford to lose.

We weren't too concerned about the CGT on any increase in value of the property as long as the original funding was recovered. However, if there is a way this could be avoided then it may be worth pursuing the option of the life interest trust. Though as you say we'd need to fully understand it first.

kidmugsy

Can anyone direct me to good reading on Life Interest Trusts, please?

missile

I would suggest you get your solicitor to draw up a contract to cover eventualities. Families can and do fall out frequently over inheritance.

I have friends who cannot sell their mother's house which they inherited after her death. A.n.other family member has a half share and has taken up residence rent free. My friend is still liable for half the ongoing maintenance.

Any profit the sisters make may be offset against their annual capital gains tax allowance £10600 see here> http://www.hmrc.gov.uk/rates/cgt.htm

John_Pierpoint

kidmugsy wrote: »

Can anyone direct me to good reading on Life Interest Trusts, please?

Google "interest in possession trust" which is what the lawyers/tax man calls a "Life Interest Trust".

It might help you avoid studying a year long course on law if you intimate the nature of your interest.

We are talking equitable law not common law here? As codified in 1925?

http://en.wikipedia.org/wiki/Jarndyce_and_Jarndyce