Advice regarding situation - renting from parents

gravitytolls

No, no, not a money grabber, it's just a little confusing.

Do you have a tenancy agreement? This may negate the possibility of being booted out if care needs arose.

why will she not rent to a stranger?

BigAunty

A landlord (despite being related) still has all the repair obligations that comes with maintaining a property. However, it seems that the OP is mainly refering to the expense of refurbishment/decoration which they have done of their own volition. It is always a risk when a tenant invests in a property by improving it in which they will get no actual return from it.

The HMRC website is very good at calculating CGT. It also should show how it is possible to reduce it, for example, by the original owner moving back into it for a period of time. I *think* but do check, that living in it for 3 years wipes out any CGT. Is it feasible that your mother might be motivated enough to do this to save herself CGT?

Is it worth running the info past an accountant to verify the CGT sum?

Is it possible to negotiate a house deposit from them of 30k less in order to help them feel as if you are taking the hit rather than them?

EDIT - I wonder if you've thought of posting your dilemma on the family/relationship board. This isn't really a housing issue, though it feels like this to you. This is about how a child is being manipulated to subsidise/maintain their parents property on a promise of inheriting it when they don't really want to live there and how someone about to bag 200k can't cope with the loss of around 15% of the gain to the taxman.

Are you sure it's the CGT that's really the issue or just because the parents are losing control over their son's destiny?
So do you think you could save more if you move into a larger property at full market rent without any repair/decorating expenses?

Dunroamin

If mum has been retired for 40 years, are you sure you'll have to wait for 20 to inherit?

InMyDreams

devildolly5 wrote: »

She wont sell because of the CGT, and our rent is a source of her income. She wont rent to strangers, so we feel some guilt at just leaving.

Why should *you* feel guilt because *she* won't rent to strangers?

If the house is not right for you, you need to explain that to her and move out.

BigAunty

Yeah, don't feel guilty.

Thanks to you, you've probably improved the value of their property by tens of thousands of pounds and paid thousands to them in the form of rent.

If they aren't comfortable using an agent to manage the property on their behalf, then that's their problem, same with the CGT bill which is a fraction of the gain.

BTW, improvements (rather than maintenance) can be offset against CGT. I expect that there is a landlord site or HMRC explanation that will detail if any of the cost of the work that you've undertaken will reduce the bill. Things like decoration won't count, not sure about replacement kitchens/bathrooms - perhaps that's too routine to be classed as an improvement.

00ec25

BigAunty wrote: »

BTW, improvements (rather than maintenance) can be offset against CGT. I expect that there is a landlord site or HMRC explanation that will detail if any of the cost of the work that you've undertaken will reduce the bill. Things like decoration won't count, not sure about replacement kitchens/bathrooms - perhaps that's too routine to be classed as an improvement.

I appreciate you caveated with I think but, with respect, Big Aunty commenting on CGT is not your strong point!

the OP, as the tenant, appears to have paid for the improvements, therefore the MIL, as the owner, cannot claim those costs as her own against her CGT since she did not incur them.

your other post about MIL living there for 3 years to get complete exemption is also fundamentally wrong. If she moves in she gets exemption for the period she actually lives there plus the last 3 years of its ownership, provided those 2 periods do not overlap - under no circumstances can she get full retrospective exemption

OP
its your life go live it.
Yes your leaving means MIL loses her source of income on which she may or may not be relying, but the fact remains YOU are being held back by living there. Guilt over her lost income appears to be the main thing holding you rooted there?

As for MIL's CGT - yes she may have to pay some but the bottom line is it is a cut of the PROFIT she has made on the property, not a slice of the total value of the property.

So she gets a little bit less now for having sold up (top rate of CGT is 28%).
Whats the alternative? If she does not sell up she gets nothing now and her estate gets hit for IHT at 40% - do the maths as to which is better obviolsy allowing for the very differnent tax free allowannces involved.

AlexMac

You now probably have clear legal rights as tenants, but ...

The key issue seems to be less about rights and the law, but more about you and your wife's relationship with her mum/your MIL, whether there are other siblings or rivals for the inheritance and whether she (the MIL) is inclined to be supportive, flexible or even generous!

Ideally she would be, given that she, like me, is of the 'baby boomer' generation which benefitted amazingly from massive house-price inflation of the last few decades until 2007, which led to your generation being cash strapped, because we effectively sucked money out of the economy for no effort.

But relationships are rarely just or simple and your MIL may not have thought through all her options.

Can you encourage her to do this? Or at least help her fill the gaps? Maybe you should try to encourage a discussion, and ask what she hopes to achieve- which presumably means a safe retirement and (at worst) a financial cushion against the potentially ruinous cost of care in the event of infirmity- unless you have a tricky relationship and prefer to walk away as others suggest? It seems that there are few options:
- you stay or leave; and if you leave
- she sells, rents out the house to someone else, or leaves it property empty to deteriorate.
If she sells, the £30k IHT may be a shock and a surprise to her, but while it's inevitable, you only pay if you've had a capital gain. £30k IHT seems fair, as few other investments would have matched a house over the past 15+ years; proper tyof say £250-300k in current value will have been worth only, say £75- 90k in 1995 (check Zoopla or other valuation websites to see). Another factor may be that she's not been declaring the income for tax and is scared of discovery, but that liability's something to research.

If you do move out, you might suggest that renting the place out is far less hassle than she might imagine If she doubled her rent to a likely average of £700-1200 per month for a 2-3 bed house, even less agents fees for tenant-finding (£500-£1k) and management (5-15% of rent) it might seem more worthwhile- ask local agents. You could even offer to handle this for her. The tax isn't difficult either (I've had a rental property for 15 years, never had a bad tenant because although I manage it myself to save fees, I use agents to find and reference-check tenants, issue 'assured shorthold tenancy agreements' and hold deposits. I rarely pay more than a few hundred quid pa in tax after expenses).
But maybe I'm going into far too much detail... Over to you