Purchasing a home with "Granny-Annex" for elderly parent?

graham929

Good morning. I would be interested in any comments on thoughts on the following;
We live in a semi-rural village and are well settled here. We have 2 children (12 & 8) who attend local schools. Although we were not particularly looking to move, a property in the village has come on to the market that we are very interested in.

It ticks all the right boxes for our family in terms of location, rooms, size space and gardens. Crucially it has a high quality completely detached and self contained ground floor ‘granny-annexe’ that has been recently built on the plot.

The annexe would be eminently suitable for my elderly father who is 84, and getting quite frail although he is still mentally sharp and drives himself about. He is a widower, lives on his own and finds his current semi-detached increasingly too big for his needs.

However, if he were to relocate with us and live in the Annex, it would allow us to keep a much closer eye on him and would be a vastly better environment than were he currently lives.

Lastly he is quite an independent minded chap and totally against a care-home type of residence for as long as is humanly possible.

The house that we may wish to purchase is on the market for £799,000. Our own house has been realistically valued at £600,000 and we currently have a £48,000 mortgage on it. My father’s house would likely attract a sale price of between £250,000 and £270,000. He solely owns his property and the mortgage is paid off completely. My father’s will leaves everything to me when that time comes.

My questions are: Assuming that my father is keen on this idea what are the practicalities or key points that we need to consider on the financial side? If my father’s property was sold and he put the proceeds into the pot for the purchase of the new property (and he is not put on the Mortgage Deeds) does that at a stroke negate my inheritance tax angle somewhat?

What other financials would we need to consider, say for example, in five years’ time, it became impossible for us to care for him in the Annex, would the local Authority have any rights as to charging us towards care-home costs if he was not on the Mortgage Deeds?
Any advice appreciated. Thank you.

SailorSam

They could say he'd intentionally given away the proceeds from his house just to get his care paid for. There must be a set number of years. 5yrs maybe they could come back but 10yrs they may not. Maybe different areas are different. I think you'd have to ask a local solicitor.

pmlindyloo

In no particular order:

1) You need to see the planning permission documents to see if there are any restrictions on who can reside in the granny annex. Sometimes you are not allowed to rent it out other than to a relative. Would this be a problem in the future?

2) As regards deprivation of capital regarding care home fees then have a read of this:

http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

If your dad is fit and healthy at the time of gifting the money to you then it would be up to the local authority to prove that this was done deliberately to avoid future care home fees. The longer the time is before care was needed would also be a factor. In your particular case the only possible thing that could be done would be to put a charge on your property. No one can give you a definite answer to this. Plus care provision may well change in the future and the charges might be found through other means for your dad. Something to be aware of though.

3) Inheritance tax. You need professional advice on this which would involve making your wills to include legal means of reducing your inheritance tax.

4) Lastly, the family dynamics. Although it seems the annex is quite detached, family life will change. Just something to think of.

There is now a 50% reduction on council tax for annexes in this situation so your dad would get a 25% single person's reduction plus a 50% discount on his council tax.

Hope this has helped.

Mojisola

graham929 wrote: »

The annexe would be eminently suitable for my elderly father who is 84, and getting quite frail although he is still mentally sharp and drives himself about. He is a widower, lives on his own and finds his current semi-detached increasingly too big for his needs.

However, if he were to relocate with us and live in the Annex, it would allow us to keep a much closer eye on him and would be a vastly better environment than were he currently lives.

What other financials would we need to consider, say for example, in five years’ time, it became impossible for us to care for him in the Annex, would the local Authority have any rights as to charging us towards care-home costs if he was not on the Mortgage Deeds?

Regarding paying for care and 'deprivation of assets', the council would have to show that he had deliberately got rid of assets/capital so that he would be entitled to claim benefits or have care paid for. As his intention in moving into an annexe in the new house is stay independent of the care system for as long as possible, they just couldn't do that.

What would be worth thinking about is how much he invests in the new house - it wouldn't be wise to put all his money into it and leave himself very cash poor.

Yorkie1

OP, will you be needing a mortgage? If so, you may find that the lender has some issues with your Dad putting money towards the purchase but not being on the mortgage/deeds.

kingstreet

graham929 wrote: »

If my father’s property was sold and he put the proceeds into the pot for the purchase of the new property (and he is not put on the Mortgage Deeds) does that at a stroke negate my inheritance tax angle somewhat?

Lenders will be unhappy with someone contributing to the deposit, but not being party to the mortgage or ownership.

You will need good quality advice on how to approach this.

The IHT situation is clear. He would give away money, but continue to derive a benefit from it, so it would fall foul of the gifts with reservation rules, so the gift would remain in his estate for IHT purposes.

The potential deprivation of assets issues have already been covered.

Mojisola

IHT won't be a problem unless Dad's estate is over £325,000 (or up to £650,000 if he was married and his wife's estate didn't use her allowance).

booksurr

graham929 wrote: »

My questions are: Assuming that my father is keen on this idea what are the practicalities or key points that we need to consider on the financial side? If my father’s property was sold and he put the proceeds into the pot for the purchase of the new property (and he is not put on the Mortgage Deeds) does that at a stroke negate my inheritance tax angle somewhat?

if your parents contribute towards the costs but are not listed as owners on the deeds (and if they were that would of course impact any mortgage position) then your parents are exposed to the Pre Owned Asset tax rules which exist expressly to prevent inheritance tax avoidance by parents not owning property they continue to benefit from

given you are talking about a property worth £800k it is highly likely that an annex thereof would have a market rental value over the 5,000 threshold at which POAT is triggered

take professional advice on tax matters!!!
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM44001.htm

http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm44000.htm#IDALOZTH

xylophone

If you sold both properties, you could buy the new house for cash and own as tenants-in-common with your father - a three way split?

http://www.theguardian.com/money/2014/aug/28/tenancy-common-care-home-fee-solution