Buying house for Mother-in-Law to live rent free! Help please!

thetonester

Hello,

My mother in law is retired and is now looking to move closer (a lot closer!) to our family (Argggh, I know!).
Their current property is only worth 45K and they can't afford the additional money required to buy a property near to us. We have offered to put the other 45K towards the property they are looking at but I was going to purchase the new property in my name and let them live there rent free as an investment ie when they sell their home they "give" me the proceeds and I buy the new house for them with that money plus my money and the house is owned outright.

Obviously once they have shuffled off their mortal coil the property would be ours to sell.

A sound investment or am I asking for trouble?
Are there any tax implcations given the property would essentially be mine whilst they live rent free?

Help please...

Tony

McKneff

You really need to take legal advice on this, its a lot more complicated than you think.

Parents cant just give their children all their money. What happens if she needs care in the future, it happens, unfortunately,
Google deprivation of assets, and like i say, see a lawyer first.

thetonester

Doh!
I didn't think it was going to be that complicated. I'm going to sound really naive here but why? Surley they can sell their house and do what ever with the proceeds??

I accept there may be gift tax implications (or such) if it was deemed they had given me the proceeds to buy the house, but they'd be happy to take that hit (to a certain extent) if it allowed them to facilitate the move.

I assumed the main problem would be when selling the house on once they pass away??

Sounds like a can of worms just opened up in my face!

CLAPTON

it's not that complicated but there are three issues you may wish to consider

1. capital gains tax when the house is sold.
as the house is in your name and you don't live there then when sold there is a potential liability for cgt; so if they wanted to move or upon death the cgt might be payable

2. inheritance tax ; if their estate is likely to be worth 650,000 then IHT would be payable but from what you have said this is unlikely to be an issue

3. care costs: if they need care and claim off the state then disposing of the 50k might be a fact

McKneff

I'm no expert by any means but say they 'gave' you £45k, 6 months down the line, mil starts with Alzheimers, (please dont take offence, but my beautiful brother, aged 48 was diagnosed with this terrible disease, ended up in a care home after just 1 year, and was dead a year later).

You see if they need any sort of benefits, either money wise or care they will be treated as if they still had this money and get absolutely nothing,

As far as I know, there are no 'gift tax' implications to the receiver but down the line, implications to the giver.

Could they possibly sell their house and rent something nearer to you.

xylophone

Might it be wiser for you, your wife, your mother-in-law and your father-in-law to own the new property as tenants-in-common?
They should take advice from a solicitor (as should you) about how title will be registered and restricted and how wills should be written to cover the circumstances? http://www.step.org/
http://www.lawsociety.org.uk/productsandservices/practicenotes/giftsofassets/5007.article
http://www.thewillpractice.co.uk/property-trusts.html might be worth a read.
http://www.lodders.co.uk/sites/default/files/service_information_sheets/Deprivation%20of%20Assets.pdf

thetonester

Thanks for the replies. This is all good info. To be honest I don't have a clue as I've never done anything like this before and making money out of this is not the main driver. I just want to make sure we dot all the i's n cross all the t's if it goes ahead. But mainly I don't want to loose all our savings!!!!

In fact it's almost impossible to predict if we'd make any money out of this whatsoever. They could last another 20-30 years and we'd loose money!

The mother/father in law are both retired (64 ish). They have £25K in savings which is not up for grabs as its basically subsidising their pensions. They have no other assest and are living next door to "nighbours from hell" as they put it!

They are desperate to move and live about 25 miles from us at present. They will just about do anything to sell up but obviously given their property is only worth £45K it is limited unless we help out.

To be honest they are driving it and we have discussed the whole "getting older/care home" thing. They/we just assumed if it come to that then they are living in a property rent free. So, pardon my frankness, they'd be simply booted out into state care with the property still remaining solely ours?? It's a risk they are more than willing to take as they are moving to a nicer area/property with our money contributing towards that.

pjclar02

Hello there

I think the issue may have been slightly over-complicated so far, so hopefully I will not make it any worse for you....but as I see things:

1) The parents can sell their house for, say, £45k. They can then gift the proceeds to you. As this is then a cash gift, there are no capital gains tax implications.

2) The gift would be a potentially exempt transfer for inheritance tax purposes, which if the parents were to die within 7 years would mean the transfer would form part of the estate for inheritance tax purposes. Your post seems to suggest though that the parents have minimal other assets, and therefore if less than £650k - inheritance tax isn't going to be an issue (even if the gift with reservation of benefi rules apply).

3) You then have £45k plus your own £45k to buy a house in your name to allow them to live rent free, which you can either sell on the event of their death or retain as an investment. This will obviously have capital gains tax implications when you sell as mentioned above.

4) The Department of Health may well consider this to be deprivation of capital, as mentioned already, and therefore treat your parents as still holding £45,000 in order to determine whether they should pay care fees - in which case they would have to as their capital would be over the de minimis threshold. Therefore, if they needed care, then you may have to come to an agreement to sell the property and return their £45k to them at this point so that they can pay toward their care.

However, you may have an argument that they owe you rent for however many years they have lived there, and as such the initial £45k gift has been eroded by the rentals not charged.

I'm by no means an expert on point 4, but this is my understanding of the DwP guidelines, so please someone pitch in if I have this wrong!

Hope this is of some help

Brighty

I could be wrong. but if you allow someone to live rent free in a house you own, are you not still liable for income tax each year based on what the going rent should be?

Brighty

thetonester

What? really?

thetonester

This lot will put the fear of god into my wife!
It's almost more hassle than it's worth. I'm guessing sit down legal advise will the best way forward but reading all your replies it sounds like a bit of a grey area!!