Buying a house with my mother in law?

acbuyer

Hi, any advice would be greatly appreciated. My father in law passed away four years ago and my mother in law is unable to manage the house by herself. We would like to sell our house (worth approx 350,000) and sell her house (worth approx 450,000) to buy a larger property together as we get on very well. We had thought to buy as tenants in common with us all having a share of 33%. My mother in law is very worried about what will happen regarding capital gains tax and inheritance tax. She has no other children and very little savings and would use any leftover money to pay for adaptations and care if needed in the future.

enjoyyourshoes

I would speak to a lawyer about inheritance etc.

Have you considered carefully impact of all living under same roof, turf wars, what happens when she needs considerable more care (will it be your responsibility), household bills, maintenance, new job and have to move away, what your mortgage company will say etc.

It is fraught with problems, not without a solution, but need joint discussions and possibly something written up by lawyer as an agreement.

Consider the unexpected consequences and discuss those as a group to cover all bases.

Pixie5740

I'm assuming that you'll be buying the new property without a mortgage. If you're all going to own 1/3 of the new home does that mean that you and your OH will put in £350k and your MIL £175k leaving her with £275k of savings to live on?


It sounds as though your mother in law is selling her main residence to buy another main residence so CGT won't be an issue. IHT might not even be an issue either given the current threshold is £325k but if your mother is concerned about estate planning she should speak to an account (not a solicitor).

acbuyer

Them you for such a quick reply. We will pay off our £100,000 mortgage so we will put in £250,000 and my mil will put in 300,000. There will be 150,000 leftover for an extension, stamp duty, costs etc and the rest will be for my mil to live on.
I'm not sure about inheritance tax. Will we still be able to carry over my fil share of the house?

acbuyer

Yes it all needs thinking about. There's a lot to consider and obviously I do not want to rock the boat when we get on very well currently.

saajan_12

You need to be very careful about shares, especially as the MIL has other children. MIL is putting in £300k just into the deposit, plus X for purchase related costs plus Y for capital improvements. 33% of a £550k house is £183k - this plus any cash would be split according to her will between the beneficiaries of her will, including OP's partner when she started with £450k in assets. This is fine as long as that's what MIL intends, but I'd make sure that's clear before there are family disputes due to OP's partner getting a bigger inheritance effectively.

Also, if MIL died within 7 years, the full £300k (£185k for her portion plus £115 gifted to OP and partner) would be inscope for inheritance tax. This might start to matter if the house value increases significantly or MIL has any other assets.

acbuyer

eggha wrote: »

Your original question says you each intend to own 33%, but on these figures that is grossly unfair to MIL since she is paying 54% of the purchase cost plus she is then paying an as yet unknown extra for an extension

if her ownership share is anything other than mathematically what she put in then she could be liable to pay income tax on the "benefit in kind" she is obtaining from living in a property she paid for but does not own. There is a rather technical bit of tax law called Pre Owned Asset Tax (POAT) which may apply to her - but obviously she would have to be caught in the first place and there are a few criteria which also apply but she should be careful in agreeing to less than her actual share of the property as it is a very obvious way to pass money down the generations which is why tax law is there to make sure it cannot be done for free

if POAT does not apply then she will nonetheless have gifted a % of the value of the house to you/your wife and since she lives in it herself that would be "caught" by the ultimate failsafe of the Gift With reservation (GWR) rule for inheritance tax. That would mean the difference between what she owns (33%) and what she paid (54%+) will be a gift from her to "you" and will therefore form part of her estate when she dies

obviously on her death she has her IHT allowance so it is very likley that no IHT will actually be payable, particularly if some of FIL's remains available - see below..

Who were the beneficiaries of FIL's estate (assuming he had a will) and how did he own the property with MIL: as joint tenant with her , or as a tenant in common with her.
depending on your answer FIL's "share" of the house may or may not still exist

Hi, my fil and mil were joint tenants and he left all of assets to my mil. This included his half of the house.

teddysmum

acbuyer wrote: »

Them you for such a quick reply. We will pay off our £100,000 mortgage so we will put in £250,000 and my mil will put in 300,000. There will be 150,000 leftover for an extension, stamp duty, costs etc and the rest will be for my mil to live on.

These figures don't add up.


If the house sells for £450000 and £300000 goes into the new house, leaving £150000 for 'extension, stamp duty, cost etc', there is no 'rest' to live on.


If she should need residential care, at some stage, that could pose problems if the only asset is part of the house.


Also, getting on well with someone who spends a short time with you, is very different from getting on with someone sharing your home.


We all got on well with my grandmother, who was blind, but I hated it when she stayed for several weeks over and after Christmas and we all hide a sigh of relief when she went home again.


Granny in her own home was lovely. Grandmother in our house became a demanding harridan, who thought she should come first in everything.

acbuyer

teddysmum wrote: »

These figures don't add up.


If the house sells for £450000 and £300000 goes into the new house, leaving £150000 for 'extension, stamp duty, cost etc', there is no 'rest' to live on.


If she should need residential care, at some stage, that could pose problems if the only asset is part of the house.


Also, getting on well with someone who spends a short time with you, is very different from getting on with someone sharing your home.


We all got on well with my grandmother, who was blind, but I hated it when she stayed for several weeks over and after Christmas and we all hide a sigh of relief when she went home again.


Granny in her own home was lovely. Grandmother in our house became a demanding harridan, who thought she should come first in everything.

Hi, thanks for replying. We are in the early stages of researching this so my sums are not exact but there should be some money left over.
I think we are all a bit nervous about the 'demanding harridan' but. I think there's a fair chance of me turning into one ; )
Why would residential care be a problem? Can they force the sale of a shared house?

Cakeguts

What are you going to do if your mother in law gets an illness where 24 hour care is needed and she has to go into a home? The problem is that the £450k that she has tied up in her house now would be needed to pay for the home you wouldn't get it paid for just because the money was tied up in the house that you all live in. If this happened you would have to sell the house so that she could get her share of the money out and there would be questions asked if she only owned 1/3rd but had paid for more than that.

The sensible thing to do in your case is actually not to buy a house for you all to live in and build extensions etc. The sensible thing would be to find her some sheltered housing. She will then still be able to sell her home in order to pay for any residential care without it all becoming complicated by her money being in a joint home.

Mojisola

acbuyer wrote: »

Why would residential care be a problem?

If MIL is assessed as having assets, the council won't pay for her care.

Would you be able to fund a care home without selling the house?