buying a property for my mum

DaughterNo2

I am currently selling my elderly mum's house for her and buying a bungalow for her to live in. The sale might fall-through so me and my sister are looking at getting a mortgage to enable the purchase of the bungalow to go ahead. This would not be for the full purchase price as mum has some capital.
Should all three of us be on the title deeds and what are the implications:
- if in the future my mum needed care - would we have to sell the property?
- if so would me and my sis get hit with capital gains tax (we both have our own homes)?
- if one of us decides to live in the property when mum eventually goes
I am going to talk to my solicitor but want to suss it out first - any advice appreciated

thank you

quotememiserable

Well, if you do that the three of you will be joint owners and effectively your mum is gifting you one third of the property each. If you all pay towards the mortgage that seems fair, but if you plan to use the sale of her house to pay off this mortgage at some later point, then effectively you've taken ownership of part of her house. This means you are liable to capital gains, if there are any, when the bungalow is sold. It seems to me also that effectively your mum would be gifting you a substantial amount, and since you can only gift £3k per year tax free, maybe there would be some current year income tax impact - but I'm guessing about that, you need to find out.

00ec25

you are using wording which can have specific legal meaning...

" I am selling my mother's house"
- do you have power of attorney to sell it for her and therefore have control over her money?
- is the true legal position that she is selling her own home and she is free to decide where to invest her own capital afterwards, with your role merely being helping her with the administrative aspects of the selling process?
Huge difference.

if you and or sister take a mortgage on mother's new home then the lender will require you to be named on the deeds of the property. As your mother will also be resident and will have input some of her own funds she also will need to be named, which may or may not affect how much you can borrow.

since you and sister will be named on the deeds you will both be liable for capital gains tax when it is sold as you both live elsewhere. No gain, no tax. Gain and the (maximum) tax rate is (currently) 28% of the gain.

the % of the property which is owned in mothers own name because she put up some of her own capital will form part of her means test. If she cannot afford to pay the care home fees without releasing that capital then the house will have to be sold, the council cannot however force the sale. However, if the council is not paid then they can (at their discretion) offer a deferred payment plan ie they take a charge over the property and recoup the money (+ interest) when she dies and it is then inherited by you, at which point you may have to sell to release the money to pay them unless you have your own cash that you can use. The State will not fund your mother's care whilst allowing her to transfer her wealth intact to you - google "deprivation of capital" - this is a very big area, so make sure your solicitor is versed in it, many high street solicitors may not be...http://www.ageuk.org.uk/home-and-care/care-homes/paying-for-permanent-residential-care/

if one of you moves in after death then it will be exempt for CGT from the date you move in, and liable for CGT for the period you did not live there. Note - if you are married the main home must be the same one for both husband and wife so unless you sell your other property then the latter will become liable for CGT as you would own 2 properties . The CGT liability is the £ gain between original cost price and final selling price x (time not lived in as main home / total ownership period) . There is no way to avoid CGT as long as you and /or sister are owners of a property you do not live in

00ec25

quotememiserable wrote: »

Well, if you do that the three of you will be joint owners and effectively your mum is gifting you one third of the property each. If you all pay towards the mortgage that seems fair, but if you plan to use the sale of her house to pay off this mortgage at some later point, then effectively you've taken ownership of part of her house. This means you are liable to capital gains, if there are any, when the bungalow is sold. It seems to me also that effectively your mum would be gifting you a substantial amount, and since you can only gift £3k per year tax free, maybe there would be some current year income tax impact - but I'm guessing about that, you need to find out.

if mother gifts her money to OP and sister and the latter 2 use that money to buy the property via a mortgage in the name of OP and sister only, then yes the property would be jointly owned by OP and sister. The gift from mother would be subject to rules around inheritance tax and deprivation of assets. The £3k pa relates to inheritance tax not income tax, but is irrelevant because mother would live in the property so it would be a gift with reservation and so will always remain exposed to IHT - whether IHT is an issue depends on size of mothers estate (threshold currently £325,000) and what happened to father's estate on his death (combined estate of a couple threshold £650,000)

However, it is almost impossible that a lender would allow this to happen as they get very sticky about allowing someone to reside in a property who is not named on the mortgage especially where that someone has put up part of the funds used in the purchase. It is more likely that mother will be required to be a co signatory to the mortgage and therefore all 3 will own the property as Tenants in Common - which may impact on the amount that can be borrowed...

as for income tax then if mother puts up the money but is not named on the deeds as owner of a property she now lives in this falls under the pre owned asset tax rule whereby if the rental value of the property is more than £5,000 pa (if not its irrelevant) and mother does not pay market rate rent to sister/OP, then mother would be liable to income tax on the value of the unpaid rent

DaughterNo2

Hi there
thanks for the responses. I have LPA (joint and several with sister) so am doing the sale & purchase for my mum. I'm going through a mortgage broker and he's suggested a 'family dependent' mortgage so it's all above board in terms of me & my sister having the mortgage and mum living in the property. Me & sis will pay the mortgage payments but we're unsure how we stand when mum's house does sell. If we use those funds to pay off the mortgage then, as QMM says, mum will have effectively gifted us a chunk of her assets.
I'll talk to the solicitors about tenants in common vs joint tenants - not sure which would be best.
It seems fairly daunting but can't lose the bungalow...

Annisele

DaughterNo2 wrote: »

I'm going through a mortgage broker and he's suggested a 'family dependent' mortgage so it's all above board in terms of me & my sister having the mortgage and mum living in the property.

I'm surprised about that. Does the broker know that some of the money for the purchase will be coming from Mum's capital? It would be very unusual for a lender to allow somebody to live in the property if they're not party to the mortgage and they contributed to the deposit. (One or the other of those things is fine; both together generally isn't).

If your Mum won't be named on the mortgage/deeds, then I think you'd have a problem with using any of her money to fund the deposit - as effectively you'd be using your PoA to gift money to yourself and your sister.

If the broker means that all three of you will be named on the mortgage (you, Mum and sister) then I don't think you'd have the same problem with the gift.

Me & sis will pay the mortgage payments but we're unsure how we stand when mum's house does sell. If we use those funds to pay off the mortgage then, as QMM says, mum will have effectively gifted us a chunk of her assets.
I'll talk to the solicitors about tenants in common vs joint tenants - not sure which would be best.
It seems fairly daunting but can't lose the bungalow...

Depends on whether the mortgage is to be in two names (you and sister) or three (the two of you plus Mum). You also need to think about what would happen if you or your sister died/went bankrupt/got divorced/became too ill to work and couldn't fund mortgage payments / some other calamity happened.

bris

Depravation of assets may be your biggest problem in the longer term.

If your mum does gift you most of her proceeds from the house sale the requires care in the future then yes you will be drawn into a depravation of assets claim.

Unlike inheritance tax which can be up to 7 years there is no time limit for depravation of assets, although the longer the better but certainly around ten years before it would be safe.

Something to think about if there is no savings to fund the care.

troubleinparadise

As attorney you cannot make more than limited gifts using the donor's money, which would restrict your option of using Mum's money to pay off the mortgage if that was needed to complete the purchase now, which will mean you and your sister then owning a share of the house according to the deeds, via your mother's money.

Does your mother have a condition which makes the likelihood of needing care, particularly residential, in the future, given that you have LPA for her, which suggests she is unable to manage her own affairs fully? In which case, as has been suggested, you do need to be careful with regard to Deprivation of Assets.

DaughterNo2

No my mum is fine; elderly but completely with it and healthy. We sorted out LPA a while back just so we could deal with stuff for her as she's not used to dealing with money etc - my dad did all that but he died a couple of years ago. I'm just thinking about the potential care scenario as my dad was fine until four years ago when he had a sudden illness, which left him with dementia and needing care in the latter stages. Just trying to think about all eventualities...probably thinking too much! Hopefully sale of mum's house will go ahead and then I can just go ahead with the purchase of the bungalow from the proceeds and not go down the mortgage route at all...seemed like a solution but I think it's more complex than I anticipated