Paying for Granny annexe - effect on estate

jillski_2

I'm posting this on behalf of my partner whose father died 6 weeks ago.
His mother is proposing to finance the build of a granny annexe at his sister's property. The plans have been drawn up and total cost is estimated at £60,000. His mother has been informed that any such investment would not then be part of her estate when she dies and the annexe would transfer automatically to his sister.
Does anyone know how this situation would be dealt with in law??

Robert_Sterling

His mother could give his sister a gift without reservation of £60,000.
His sister might choose to build an annexe to her house.
His mother could then pay a market rent for living in the house.
His sister could pay income tax, if appropriate, on the rent.
The gift of £60,000 would be a Potentially Exempt Transfer and after 7 years it could become an exempt transfer i.e. No IHT on it.
It sounds a bit to much like a gift with reservation if his mother is paying for the annexe and then "has the right" to live in it.

jillski_2

The idea is that his mother then lives there rent free. His mother is selling her flat to finance the build.

jennifernil

My Mum came to live with us in 1988. We sold both our houses and built one new one with a special area for my Mum. She gave us a gift of about £40k which we put towards the cost of the house. We understood that as long as she lived another 7 years there would be no IHT on this money. In fact she lived 14 years, so there was no problem.

Surely the OP's partner's mother could do something similar?

My Mum's estate would not have been big enough to be liable to IHT anyway, but the size of the estate in question would have a bearing on the situation here.

If the OP's partner is worried about not getting a fair share of his mother's estate, this could surely be taken care of by a suitably worded will.

zzzLazyDaisy

The mother could finance the building of the annexe in return for a commensurate share in the house - say 10% (or whatever). Her name would be on the deeds and she would be entitled to live rent free in the house. She could leave her share to the daughter in her will. However if the whole estate including the interest in the daughter's house was more than the IHT threshold (not sure of exact limit but about £280,00) then an IHT liability might arise. So this scenario depends on the size of the overall estate