"renting" house out for free

gulabjamun

Hello,

My grandmother is looking to move in to sheltered accomodation. She would like to let me (her grandaughter) and my husband live in her house (which she owns outright) for free so that we can save up money for a deposit.
I just wanted to know if anyone would be able to give any advice as to the legality of this? Would we be able to live there rent free and are there any tax implications?
In her will the house will go to my mum when she dies - if that has any relevance?
Many thanks,
Anna

LEJC

what potentially has more relevance is how does your grandmother intend to pay for her ongoing care costs?
at the moment sheltered housing could be funded via her income and svings but if she requires the care of a nursing home and has used the majority of any cash savings by that point...she will need to liquidate the house to pay for her care..


at that point have you thought where you would live?


Lots of questions and senarios come from this type of situation the main thing being what happens if she needs further care...that can be very expensive.


The fact that the house is willed to your mother has little significance as a will only comes into play once the person has passed away.
It could be that your grandmothers house is sold long before she dies and therefore your mother does not inherit it.

BitterAndTwisted

There are no legal issues and no tax ones either for the present. It's only if your grandmother's situation should change that there could be.

If your g/m needs income to pay for future care you could start paying a market-rent instead of the property being sold, but that all depends on what income may be required at the time.

theartfullodger

Couple of points....

Hope your gran lives a long & happy life: She is perfectly entitled to change her will at any time &, say, leave everything to Battersea Dog's home..

To protect her interests & yours there should be a written agreement,. Doing a let for no money is legal but contractually difficult.. it cannot be (may not be, is legally impossible to be,,) a "normal" AST (Assured Shorthold Tenancy). It would need a special tenancy that gran would be advised to get a specialist solicitor to draw up...

Gran would have liabilities like Gas safety certificate, landlord insurance, ensuring safe electrics etc etc etc - a minefield....

If gran becomes (I hope she doesn't obviously...) even less well someone might need to take "Power of Attorney": That person might then decide to sell the property to pay (say..) care home fees etc...

My own suggestion would for the place to be rented to ANYONE BUT family for "normal" market rent on a "normal" tenancy: If gran then wanted to give you the monthly rent that's her decision .. but legally much safer & cleaner...

Any money she gives you in the 7 years before she dies (sorry,,,) - either cash of "moneysworth" (such as being permitted to live for free in a house) would be liable to IHT.

The authorities might decide that allowing you to live there (and it not be sold..) would be (legal phrase) "deprivation of capital" etc etc etc.. Beware, minefield..

This is a minefield. Gran should get independent legal advice - Were she my gran (none left & both parents gone) I would advise her to get advice from people other than family:

Hope she stays fine & active for many years: Best regards

gulabjamun

Hello.... thanks for your reply.
She intends to pay for the cost from savings which she has calculated will cover her for 15 years if she doesn't need any care. The site she wants to move to isn't a care home - more a collection of flats for elderly people. If the situation does change and she needs care she would sell her house and use the money from that to pay for it. If that is the case, we'll move out in to a rented house.

gulabjamun

Thank you LEJC, Bitter and Twisted and the artful lodger for your advice too!

G_M

On reflection, I think artful is right. Cleaner/easier to rent the property formally, at market rent, to non-family, then give the rent to you to help with deposit etc.

It does, o course, introduce the issue of income tax though (on the rent), though it makes the management of the property more business-like.

da_rule

The only problem with rental income will be that the OP's Grandmother will have a liability to income tax, depending on her other incomes (pensions, dividends etc).

I_have_spoken

Yes, some written agreement would be helpful and surely gran would be happier knowing her grandchild is saving up and her house is being looked after by family - she could end up with a 'professional' tenant who knows their rights backwards.

I'd draw up a 'house sitting' style agreement.

Alternatively, if the house is worth a few £££s, speak to a specialist about how to sell it and put the money into a family trust to minimise what needs to be paid for care to the greedy Council.

either cash of "moneysworth" (such as being permitted to live for free in a house)

I'm not aware that 'benefits in kind' can fall under IHT

theartfullodger

I_have_spoken wrote: »

...

...I'm not aware that 'benefits in kind' can fall under IHT

I did not mention "benefit in kind" but "moneysworth" - different.

Inheritance Tax Act 1985 S(5)(5)
http://www.legislation.gov.uk/ukpga/1984/51/section/5

(5) Except in the case of a liability imposed by law, a liability incurred by a transferor shall be taken into account only to the extent that it was incurred for a consideration in money or money’s worth.

- and several other mentions in the Act of "money's worth"

Mojisola

I_have_spoken wrote: »

Alternatively, if the house is worth a few £££s, speak to a specialist about how to sell it and put the money into a family trust to minimise what needs to be paid for care to the greedy Council.

If you are self-funding, the Council, greedy or otherwise, isn't involved in your choice of care home. You pay the care home, just as you would if you stayed in a hotel.