Purchasing new house with parents-in-law

warthog_78

I'd love some advice regarding the sale of the house belonging to my parents-in-law and the potential purchase of a new house. The idea being that they would gift us the money from their sale and we will purchase a new house with an annex for them. We are going to get legal advice but I'd appreciate knowing a little about the options/implications before I instruct a solicitor. We would like advice on the possible ways of processing such a transaction and the pros and cons to each with regards inheritance tax and means testing for future care etc. the general principle would be they gift half the money (i.e. early inheritance) and we get a mortgage for the other half, and then they spend some on converting the annex. Any advice appreciated.

dragonsoup

warthog_78 wrote: »

I'd love some advice regarding the sale of the house belonging to my parents-in-law and the potential purchase of a new house. The idea being that they would gift us the money from their sale and we will purchase a new house with an annex for them. We are going to get legal advice but I'd appreciate knowing a little about the options/implications before I instruct a solicitor. We would like advice on the possible ways of processing such a transaction and the pros and cons to each with regards inheritance tax and means testing for future care etc. the general principle would be they gift half the money (i.e. early inheritance) and we get a mortgage for the other half, and then they spend some on converting the annex. Any advice appreciated.

We did exactly this about 25 years ago with my PiL. My OH is an only child so we didn't have to worry about siblings and that type of added complication. He was going to inherit everything in the future anyway.

Essentially they sold their house and gifted us the proceeds. We than used the capital to buy a house with an annexe for both them and us and we funded the extra capital needed by way of a mortgage.

It had to be an outright gift with no strings so they had absolutely no rights over the new house. They were not party to the mortgage nor did their name appear on the deeds. They also paid us rent ( which was equivalent to 50% of the running costs of the house excluding the mortgage). We paid for the necessary conversion work so they didn't put any money directly into the fabric of the house.

Our solicitor was reasonably confident that this would qualify under the rules but there was no 100% certainty so we were aware that we were taking a bit of a risk.

This of course made them extremely vulnerable. They took separate legal advice and used a different firm from us. We could have kicked them out at any time.

The gifted capital was treated as a PET for IHT purposes officially split 50:50 between them which kept it well below the IHT band. As it happens they both easily survived the 7 years.

My MIL did require residential care for the last few years of her life but by then they had lived with us for so long that deprivation of capital was not an issue.

From my pint of view it was a very mixed blessing. The house was big enough and the annexe completely self contained with its own kitchen and bathroom but it still impinged on our family privacy. They also lived a lot longer than I'd anticipated given that they were in poor health ( which is why we did it) - in fact it was 20 years in the end! I found it much harder then I'd anticipated but there was no way of undoing the arrangement.



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kingstreet

This would not be a PET as the donor continues to derive a benefit from the gift. It falls foul of the gifts with reservation provisions, so it will never fall out of the estate for IHT purposes.

Many lenders don't like properties with an annexe.

Many also dislike those contributing to the deposit not being party to the mortgage while living in the property.

dragonsoup

kingstreet wrote: »

This would not be a PET as the donor continues to derive a benefit from the gift. It falls foul of the gifts with reservation provisions, so it will never fall out of the estate for IHT purposes.

Many lenders don't like properties with an annexe.

Many also dislike those contributing to the deposit not being party to the mortgage while living in the property.

It's considered fine as long as they pay a commercial rent for the accommodation which in effect they did.

Our lender ( Halifax) was fully aware of the situation and had no problem other than a bit more paperwork. I guess things may have changed nowadays.

kingstreet

Sorry, please don't view my reply as responding to you. I was responding to the OP who hasn't suggested anything remotely similar to the market rent solution.

OP- get professional legal, mortgage and tax advice.