Ways to purchase parents home

martinsurrey

Werdnal wrote: »

You may also fall foul of deprivation of assets ruling if your parents needed paid residential care and the transfer of the house ownership was deemed as getting rid of their assets to save paying care fees.

Deprivation of assets only applies if the mean reason for the transfer was to avoid the care fees,

As the parents don’t seem to need care now or in the immediate future, they wouldn’t be caught by the rules on this.

The main problem with this plan is inheritance tax anti avoidance measures.

http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071.htm

so your plan is pointless from an inheritance tax point of view.

holly_hobby

Ok,

The idea is that Parents are to remain resident post completion and you intend to charge them rent (I am imagining to avoid this being classed as a GWR and under POAT instead. It does not fall under PET regs and the 7 yr clock, as they will be retaining benefit of the assset)

Well there are several issues ...

You intend to let, so need a suitable mge.

Unfortunately, as with the residential issues I discussed above, you will neither secure a BTL mge, which would have to be a regulated BTL in any event (as more thn 40% of the unit will be occupied by family), and have the Vendors remain resident. This is termed a "sale and rent back" agreement - lenders won't play with this (again its down to Vacant Possession and the ramifications it can have with future possession orders of the lender.

Putting the mge issues to one side, if you don't charge rent, its a GWR - so the avoidance exercise has been pointless.

POAT qualification = full market rent charged, reveiwable AST and traditional landlord/tenant relationship evidenced, inc bearing of associated costs to each party (don't forget reporting of rental income to HMRC).

Re - Deprevation of Assets (DOA) - peeps do get confused with this.

This is ony relevant with regards to LA/DWP and any claim for MT benefits, such as Housing Benefiit, Income Support, and yes state assisted long term care (LTC) funding.

With regards to the LTC funding, DOA will be cited if the Local Authority (LA) believe it reasonable that the individual knew at the time of the transfer/sale/gift, that it would be highly likely they would later seek LTC LA assistance.

So esp re LTC, its not as straight cut as saying they will automatically fall foul of LTC DOA regs due to the sale at undervalue, they may not, wholly depending upon the prior knowledge of a potential care need (eg where they already have a slowly progressive illness, which they know will at some point severly affect their future ADLs (active daily living requirements), or the timespan between the exercise and requirement of care, again case by case.

The pivotal point being at point of transfer did they know and/or their medical records indicate, that they had reason to suspect their condition would at some point require residential care - thats the argument the LA has to prove re DOA (if the event is within 2 yrs of the exercise, they are usually successful, after 2 yrs it will depend upon records etc, and a tad more difficult for them to prove intention of the individual if there is no medical evidence to support prior knowledge).

Increased IHT nil rate threshold (of 650k), is applicable where the 1st decd spouse has made no non-exempt transfers dur ing their lifetime, and their whole estate goes to the surviving spouse - as there is no IHT between spouses.

The 650k (or double nil rate threshold) comes into play on the death of the surviving spouse, but it is not automatic and applicable only if their executor/administrator applies to HMRC for the tsf of the unused nil rate band of the pre-deceased spouse - if they don't seek the tsf, then the 2nd decds estate only has 325k (or whatever the nil rate band at that time is) to play with.

If the 1st decd had made non-exempt tsfs, then the tsf amount is not a straight switch, but a % of the remaining nil rate band represenative (won't go into here as can be a tad complicated, and isn't relevant to your case as far as I can see).

If your parents estate is liable to IHT, there are several ways to start to mitigate and protect the estate from HMRC erosion - and I would suggest that they spend some time with a HNW adviser, whom will provide guidance and solutions to the issues they face and want to protect their beneficiaries from - but your current idea is flawed and not a viable solution from several angles .... sorry not something I know you will want to hear !

Anyhoo hope this helps

Holly x