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

thetonester

Thanks for all the really good advice. After some lengthly discussions with the in-laws we've come up with an idea or rather I have.

Could we do the following.....

1. They sell their property for £45K

2. We all buy the new property together for £90K. ie the property is co-owend buy myself, the wife and the inlaws and essentially ownership is split equally 4 ways. Therefore we all owe 25% (£22.5K) of the house each.

3. They move into the house and live rent free till the day that both of them pass away.

4. However on moving in they imediately do "a kind of equity realease sort of thing" with their 25% shares of the house to myself and the wife. A sort of a rent but not a rent. They would pay say £200/month to my wife and £200/month to me from their own 25% share of the house. This way their share of the house diminishes every month and our % shares increase exponentially, until eventually after 10 years or so they own nothing and we own everything. Obviously this would all have to be through a soliciter and above board etc.

Couple of futher points...

If either went into care then they would be deemed as owning only the % of the house that they owned at the time. Depending upon when this occured then it is likely to be under the care threshold for savings and therefore they'd not be eligable to sell their portion of the house to pay for state care. Say they ended up in care within 5 years, they may only own 13% of the property each. This would mean they'd only own say £15K each. Obviously if both went into care within say first 3 years then we'd be in trouble! They are both in their mid 60's and in good health so it's a risk but a low risk I think.

If they both died prior to the house ownership being transfered over to ourselves then I'd sell the house keeping our "at the time" % of the sale and the reminder after CGT would be spread around the remaining siblings (7 children - Thats step families for ya!). Or they may simply will their shares to my wife.

Buying the house in both my wife and my name then allows us two CTG tax free allowances when we sell the property.

Please advise if this is sensible or madness. My head is in a bit of a spin with all this!!

jennifernil

So this 2 x £200 per month would be gifting that amount of their share to you?

I think you might come unstuck there under "gift with reservation"

If they have funds to pay for care (and it would only be if they were both in care at the same time, or one died and the survivor needed care) then the funds should be released for their benefit. At the moment, they only have to pay in full if they have over about £23k, then it is a sliding scale. Limits may change.

For £45k or so, I would keep it simple and hope for the best.

Either let them gift you the £45k and you and wife own house, this would limit any future care fees liability to £22.5k per parent. Or buy together as a 4 way split.

Personally, I would go for the latter for the reasons I outlined in my previous post.

If you are going to take care of all the upkeep of the property, you may be able to phrase an agreement that limits their share to the original £45k, a friend of mine has done this, but you need to check that with a lawyer. In my friends case they actually share the house and have a mortgage only they pay, the parents only contribute to bills.

sleepless_saver

Whatever you decide, bear in mind the possible impact on your own retirement planning. See this thread https://forums.moneysavingexpert.com/discussion/3754547 for issues that can arise if you buy a property for someone who expects to stay there for life.

kidmugsy

I understand that in English law up to four people can own property together as "tenants in common". So consider the four of you buying a house together using the £45k from the house sale and another £45k from the younger couple. The younger couple could presumably charge rent - perhaps a nominal amount - since they together own half the property but don't live there. Mind you, you really would want lawyers to sort this out in such a way that the older couple can't end up without a roof over their heads.

thetonester

Thank you for all the really good repiles. It's helping us make a difficult decision even if it is dragging on a bit....best not to jump straight into these things though eh!

One more thought.

Could I but the house outright just me and my wife and rent it to the in-laws as private tennents?? Thus would only work if they became eligable for some kind of rent rebate (as both pensioners)once they had exhuasted their savings?

1. Say I buy the house for 90K using 50K deposit. So I have a mortgage of 40K over say 10 years.

2. They then sell their own house for 45K and move into the new house and pay me a rent of say £500 pcm until they have essentially exhausted all of their 45K on the rent on our property.

3. At that point would they be eligable for some kind of private landlord rent rebate? given...
They would have been living in the property for say 7 years by then paying rent at £500 pcm.
They both will be 69 ish by then. i.e. State pensioners for a good few years.
Only 1 has a private pension (which will be very basic - welder!) and by then no other savings etc.

In the event that 1 dies whilst living at the property the other will be willed the remaining savings.

In the event that both die whilst living at the property they will the remaining savings to my wife.

Obvioulsy if both die after the savings have gone then we would be left with some mortgage to pay. This would hopefully only be a few K by that time and the property could either be sold or another tennet found to cover the cost.

I appreciate the rent they pay me would be taxable and if/when they are able to claim private landlord rent rebate then it may at a lower figure than the rent I want to charge. Say only £300 compared to the £500 they paid previously prior to running out of savings. If this was the case then I'd charge them no additional rental on top up the rent and take the hit on the rental from that point on.

I appreciate this would all cost me in the long run. ie
Paying tax on the rent
longer mortgage payments with the potential of decreased rental income within say the last 3/4 years.
CGT on selling the property.

All this would be acceptable to a degree as they are desperate to move house and we are very eager to help.

Thanks!!

jennifernil

You would need a Buy to Let mortgage, which is probably more expensive, but you would be able to set the interest payments and other costs against the rental income before it is taxed. You would need the correct insurance of course, and things like a gas certificate.

I would not depend on them getting help with rental payments if/when their savings run out, renting to family can be tricky in that respect.

If either of them needed care then there would be more savings in cash to be taken into account in the early years, so you/they need to consider that.

You need to decide what your real aim is here. Is it to do what is best for them, or is it to avoid the £45k from the sale of their present house possibly being used to fund their care? Remember, only a small percentage of people ever need to go into a care home.

thetonester

Thanks once again.

You are correct. Deciding what to do is the whole problem. The inlaws are desperate to move but the decision is not all down to me unfortunately, the in-laws hum and har over everything I suggest . . . to say my head is in a spin is an understatement!

We have nearly paid off our mortgage on our own home so I was looking to borrow about 40K against our home and buy the other house outright. This is fairly easily given our current mortgage and I have checked with the bank already so the purchase could be failry swift and painless???

However, as I'm new to all this I wasn't aware you could claim back the mortgage payments on a rental property and therefore only get taxed on the profit from the rental? I'm so new to all this! Suppose that would obviously save a lot of money when compared to re-mortgaging my own property wouldn't it.

I'm going to have to research all that side of things now!

Thanks.

xylophone

http://www.alexanderhall.co.uk/mortgages/buy-to-let/tax-implications.html
http://www.uswitch.com/mortgages/buy-to-let-mortgages/
http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013376
http://www.direct.gov.uk/en/HomeAndCommunity/Privaterenting/RentingOutYourProperty/index.htm
http://www.ownershipoptions.org.uk/pdf/Buying%20to%20let%20to%20a%20relative.pdf
If the in-laws hold all their savings in a joint account there will be no need for one to will money to the other- it will pass by survivorship?
http://www.direct.gov.uk/en/Governmentcitizensandrights/Death/Preparation/DG_10029468

property.advert

Just thinking of ideas ?

They pay 45k for a lifetime annuity from you which is equivalent to the rent on the property.

They pay a 45k premium for a 30/40 or whatever length lease at a peppercorn rent.

They have to relinquish any form of ownership otherwise it will not be 45k which is in question but their proportion of the property which could be much more than 45k if property prices rise.

Peanuckle

thetonester wrote: »

3. At that point would they be eligable for some kind of private landlord rent rebate? given...
They would have been living in the property for say 7 years by then paying rent at £500 pcm.
They both will be 69 ish by then. i.e. State pensioners for a good few years.
Only 1 has a private pension (which will be very basic - welder!) and by then no other savings etc.

Bear in mind the restrictions on housing benefits if you're renting from relatives in relation to this bit.