Buying 'granny flat' with mum's savings

Dudljo

Hi

My mum is near 90, and her health is deteriorating. We don't want her to go in a home. And neither does she.
We're looking to move house anyway, but now we're considering whether mum should move in with us.
She currently lives in council property, but has savings - her will has percentages of her savings to be given to me and my sister.

If we move, we always intended to 'top up' with capital, as we currently have a '0.18% above base for life' mortgage (Woolwich) that is transferable to another property. We'd be daft to lose that mortgage rate, so capital top-up was the intention when we moved, using our own savings.

Questions: can we add her additional savings into the capital-pot to buy a larger house, with a granny-flat for example?
By law, is this considered a gift (and above the limits), or is all okay as long as she's named on the deeds?

How would this affect her current will ?

Thanks in advance?

G_M

If you and mother jointly own the new property (as Tenants In Common splitting ownership x%/y%) then she has not gifted you anything.

Problem will be you'll then need a new mortgage in joint names.

If she gifts you the money and you buy in your own name (and port existing mortgage) then yes, if she dies within 7 years that gift will be subject to Inheritance Tax within her Estate.

But that would be true of her value in the property anyway if she owns a %.

Dudljo

Thank you for your reply.

Her entire savings are around the £120K mark, and we'd only be looking at using £50K of that - or less. Presumably, that's not subject to any inheritance tax at all? Or are the inheritance tax rules different for 'gifts'?


Thank you

Pixie5740

For the gift not to be taken into account for IHT it would have to be a gift without reservation and your mum would have to survive for at least 7 years after making the gift. However, I'm not sure if this is a gift without reservation since the money gifted will be used to buy a new home for you and your mum. I'm no tax expert though.

xylophone

If mother's total assets comprise £120,000 in cash then she is well within her personal IHT allowance (currently £325,000) at the moment, let alone any allowance inherited from a late spouse.

Does your mother actually need an annexe?

Could you and your spouse not simply buy a house with a room downstairs large enough to be adapted into a comfortable bed sit with ensuite for your mother's use?

She could then make you a monthly payment to cover her share of expenses.

No change to her current will would be required.

G_M

Dudljo wrote: »

Thank you for your reply.

Her entire savings are around the £120K mark, and we'd only be looking at using £50K of that - or less. Presumably, that's not subject to any inheritance tax at all? Or are the inheritance tax rules different for 'gifts'?


Thank you

It is not the size of the gift that determines if IHT is payable - it is the total value of the Estate (including the gift if death is within 7 years of the gift-date).

However the threshold for IHT is currently £325K (see here).

So with total savings of £120K there will be no IHT unless she also has other assets (the car, the investment funds, the yacht, the gold bars, etc)

teddysmum

She has enough assets to be required to self fund, should she need care, so this could cause problems with your 'inheritance'.


I know you intend to look after her, but sometimes even the most devoted people just cannot cope and residential care is the only option.

Dudljo

Yes, I was reading up on the 'self funding' issue last night. It does seem that if she 'gifts' me money to help purchase her 'granny flat' then that gift would still be taken into account as part of her total estate.

Which I guess makes sense, but its something to bear in mind if she does need to go into care, as the money would need to be available to fund that care.

Thanks

Hoploz

But if she has 120k and you are only talking about using 50k of it. The remaining 70k would pay for quite a long time of care fees.

I think it'd be much simpler to buy something like xylophone has suggested - a bungalow with converted roof is often the best way to go here. That way you would possibly have one or two bedrooms upstairs and one good size downstairs room for her to be separate. She can pay you market rent presumably, or however much you agree on.

If you share ownership of the new house it will affect your mortgage - you'll have to get a new one and her name would be included on this and the deeds. Then when she does eventually die, it would be a complication when valuing her estate which will you'll need to do in order to divide her assets according to her will.

elsien

If my mother moved in with me (not going to happen!) then I'm fairly sure the both of us would prefer her to have an annexe rather than one large room. She wouldn't want to spend the day sitting in her bedroom, and having lived together as adults we each need our own space for friends to visit etc, so as not to drive each other completely up the wall.
Now obviously all family dynamics are different, but would mum/you want to be sharing the same living space all of the time?

Hoploz

So you could add a conservatory on next to her bedroom?

This lady is 90 and her health is deteriorating. To be honest about it, one has to ask oneself how long this situation is likely to go on for. My mum is 82 and lives by herself. Likewise she also doesn't want to go into a home ... but if her health does deteriorate to such an extent that she is no longer safe to live by herself, do I really think it is sensible to hang around for months and months trying to find a perfect property with separate annexe accommodation? If it all went to plan and she held on for the inevitable minimum 6 months it'd take to sell and buy the new place, how long would it be ideal for? It's not going to be that long in reality. Then after she's gone, I'm stuck with a home which doesn't suit my needs anymore, as I bought it just for the short time my mum needed it. So where does that leave me? Selling my home two years after I bought it.

It's such a difficult situation. But it is something which needs addressing quickly. And with the least disruption possible to her.

Is it really not possible for her to move in with you where you are now? It's familiar territory for her.