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

CLAPTON

Brighty wrote: »

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

absolutely NOT
where ever did you pick this up from?

Brighty

CLAPTON wrote: »

absolutely NOT
where ever did you pick this up from?

On here a few years ago i think, as i said i could be wrong and stand to be corrected,always did think it was crazy, but i think the logic was that otherwise there would be nothing to stop a landlord claiming their tennants are friends living rent free and pocketing the rent as cash and paying no tax on it.

Brighty

thetonester

Thank you all for your great advice.
I'm trying to get my head around all this, is this how it could work

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

2) The £45K will be exempt from (future) inheritance tax purposes, as her parents have and will never have anything more than the £25K in assets they have now. GOOD

3) I will then have £45k plus our own £45k to buy a house in my name to allow them to live rent free. If I sell the house on in the event of their death I will incur capital gains tax implications. To what extent? GOODISH depending on how much we have to pay?

4) If they needed care in the near future (how near would be consdiered accepatble?) The Department of Health may well consider the "gift" to be a deprivation of capital and therefore treat her parents as still holding £45,000 in order to determine whether they themselves should pay care fees! Leaving the possibility of us footing the care bill? BAD BAD BAD

xylophone

http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm
Don't forget that you and your wife have a CGT allowance.

McKneff

To be honest, if you do buy a house and you have paid half of it, I really see no reason why a rent can't be charged, even if it is
for half the going rate.

pjclar02

thetonester wrote: »

3) I will then have £45k plus our own £45k to buy a house in my name to allow them to live rent free. If I sell the house on in the event of their death I will incur capital gains tax implications. To what extent? GOODISH depending on how much we have to pay?

Only to the extent that you make a profit on it. If you buy it in joint names now for £90k, then you will only pay capital gains tax if you sell for over £110k as you have an exemption each of £10,000 from capital gains tax. You will pay tax at either 18% or 28% on the profit, depending upon how much you earn.

thetonester wrote: »

4) If they needed care in the near future (how near would be consdiered accepatble?) The Department of Health may well consider the "gift" to be a deprivation of capital and therefore treat her parents as still holding £45,000 in order to determine whether they themselves should pay care fees! Leaving the possibility of us footing the care bill? BAD BAD BAD

Yes - this is always a sticking point when conducting inheritance tax planning for clients. I understamd that there is no time limit preventing the DWP from back-tracking as far as they want to determine whether capital has been deprived. I would imagine that the longer the time period that elapses, the less likely they are to uncover this gift, but I would prepare for the worst case scenario.

However, I don't believe you would be liable for the care fees per se. Your parents will be responsible for the care fees until they can show that their capital (including that which was subject of the deprivation) is below the de minimis limit which is think is around £23,000. Once their capital drops below this, they can claim support for the payments. But you would need a way of getting the £45k back to them in this eventuality or they may be left in need of care, but being unable to pay for it - so you really need a mechanism of returning their gift to them if called upon to do so (i.e. selling or remortgaging the house.)

pjclar02

McKneff wrote: »

To be honest, if you do buy a house and you have paid half of it, I really see no reason why a rent can't be charged, even if it is
for half the going rate.

The only issue with this is that the OP would have to pay tax on the rental income, less any qualifying costs.

jennifernil

Some good advice there.

If they are in good health now, then several years down the line the deprivation of assets may well not be a concern, especially when the money has gone to providing them with somewhere to live rent free.

With the £45k shared by them, they are each gifting £22500, so only that much could be taken into account anyway if only one needed care in the near future.

If you all bought together with the property owned 4 ways, if one needed care the property would be disregarded as the spouse still lived there. If they both needed care then you could either sell up and split the proceeds, or rent out the property to pay towards their care.

If one goes into care, then dies, if their share is willed to you 2, the remaining parent will only have one quarter of the value to be taken into account. Then there could also be the idea that a quarter propety has no value as nobody would buy a quarter share of a house.

thetonester

Thanks very much everyone for all the great advice!
Sounds like a rather difficult and awkward phone call to the in-laws in on the cards tonight.
Why oh why is nothing in this life simple?????

McKneff

If life was simple, it would be very boring.

Good luck with it all.