Supporting parent by purchasing their flat...

Pay_Da_Gals

Hi, my mum has just turned 60, she owns two flats both worth about £170k, one she lives in and one she rents out, but this is not enough money to live on and has no real savings to speak of. She has just lost her job part time job and is struggling to find a new one. She is perfectly healthy, but damaged her knee in 2012 and now has difficulty walking and standing for long periods of time. My mum is desperately stressed and unhappy about the situation she is in.
I would like to buy the flat my mum lives in – this would give my mum the additional money she needs to live without working so she can ‘retire’ making her happy, and I will have an investment in the flat she owns.
Also I do not have the full amount of cash to buy the flat outright – there would be a large deposit now and then monthly payments to my mum. I do not want to get a mortgage as I would rather the full amount of money goes to my mum and not the bank.
Basically I want to give my mum money each month as she needs it (I already give her money each month to support her income) and in return I’d own her flat, but I am not sure about doing Gift with Reservation as my mum needs to live in the flat and cannot pay me rent as she doesn’t have any money. I would own the flat so there would be no issues with IHT. And then if my mum needs care in later years she can sell her second flat to support the cost, I am not trying to swindle the local authorities, just support my mum.
Any advice gratefully received..
Many thanks

princeofpounds

It is possible, but will be a bit complex.

One major danger you will need to be aware of is deprivation of assets if your mother needs care or other benefits.

http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

Another thing is inheritance tax and the seven year rule.

If she is 60 and otherwise healthy, you may get away with these risks but you need to understand them.

One structure you can do is for your mother to sell you the house with a private mortgage (she takes your deposit and 'lends' you the rest of the house which you then repay over the years). You would then rent back to her. But the tricky bit is making that rental contract sufficiently secure for your mother. ASTs last max 4 years, but she could be there for 30 years. And really long term rental contracts can attract stamp duty, just like a purchase.

Another approach would be equity release, where you lend your mother money for a given interest rate, secured on the house, payable on sale of the house. The aim is essentially that you eventually get paid with the house itself, or at least a large share of it. But the impacts on various benefits entitlements are complex and it might not pay you back with real cash for a long, long time.

So you will need good legal and tax advice.

00ec25

it is not clear what you aim to get out of this plan

- by purchasing the house and paying them in instalments the unpaid balance is a gift with reservation and so remains exposed to IHT on their estate until they die
- you may be the legal owner of the property on paper but deprivation of assets will mean if parent needs means tested care the transaction will be ignored
- you are voluntarily exposing yourself to CGT on a property which you would otherwise receive without CGT implications via your eventual inheritance on her death

What is it that you want to get out of the arrangement? If your plan is simply to support your parent financially then it would be much easier to just up your current payments and not to seek any "security" in return.

Pixie5740

Wouldn't it be simpler if your mum just sold the property she lets out and uses the proceeds for the sale to live on? That way she wouldn't have to worry about covering void periods and any repairs to the let property?

Pay_Da_Gals

Thanks guys for coming back to me so quickly:)
@PrinceofPounds – I like the sound of the first structure – we pay a deposit now and then pay her a monthly payment for the next 15 or so years until the flat has been paid off. I am confused about “You would then rent back to her”

@00ec25 – So with your first point – could I buy percentages of the flat at a time eg buy 15% of the flat every 4 years once I have saved up, so there is shared ownership so we do not get caught with GWR
Your 2nd point - So if we have bought/paid for the whole flat by the time my mum needs care the flat we own would be taken in consideration on her means testing – good to know thank you.
Point 3 – Once my mum is no longer around we intend to live in the flat ourselves it is in a beautiful location. I thought CGT was only if you tried to sell the property – have I got this wrong (probably)

Pixie5740 – we have thought about this – but my mum needs the money from the rent on top of what I can give her. And if she sells her flat it will not give her enough money for the long term if she hopes to live 25years it would work out at less than £400 a month as a fixed rate – which isn’t enough for her to live on now or in the future….

CH27

OP has posted this elsewhere too
https://forums.moneysavingexpert.com/discussion/4953860

xylophone

Presumably your mother will qualify for a state pension when she is 66 or so?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf

It would still seem simpler all round for her to sell the rented flat and supplement her income from the proceeds and a job that didn't require walking and standing for long periods?

If she is looking for work is she drawing JSA? Is there no help at the job centre in finding something suitable?

If she insists on keeping both properties, could you become tenants in common with your mother on the flat she occupies, buying as much of a share as you can now afford?

00ec25

Pay_Da_Gals wrote: »

@00ec25 – So with your first point – could I buy percentages of the flat at a time eg buy 15% of the flat every 4 years once I have saved up, so there is shared ownership so we do not get caught with GWR.
if you buy in increments then yes provided your 15% and each subsequent increment has cost you a market rate price so there is no element of undervalue or gift involved. Of course getting a realistic value for a part share of a property with a resident co owner is frankly a job for a professional valuer since even if you say you will pay 15% of today's market price of the whole flat what is the value next time round?

Your 2nd point - So if we have bought/paid for the whole flat by the time my mum needs care the flat we own would be taken in consideration on her means testing – good to know thank you.
provided she is no longer a co owner AND you have paid her full market price with no gift or undervalue AND she has not given the money away (or more controversially spent it on frivolities) then yes deprivation of assets is irrelevant in that scenario since she has the money from the sale still in her bank so has not deprived herself of her wealth

Point 3 – Once my mum is no longer around we intend to live in the flat ourselves it is in a beautiful location. I thought CGT was only if you tried to sell the property – have I got this wrong (probably)
correct that it applies only when sold but eventually you will be the seller and will have a CGT liability for the propertion of the gain which occured whilst you owned it but did not live in it. For example say she lives another 10 years and you sell it after 25 years when it has increased in value from £170k to 250k then you would be liable for a non exempt gain of (250 -170) x 10/25 = 32,000 less whatever your CGT personal allowance is in 25 years time (currently £11,000)

as above