Most Tax Efficient Way to buy a house for my Dad

ZiggyB

Hi
Please could somebody advise the most tax efficient way to purchase a property for my Dad. Our circumstances are as follows:

• I have £110k in savings
• My Dad has about £60k in savings
• The house we are looking to purchase is £160k

The ideal scenario would be that I purchase the home, my Dad lends me the £50k and I pay him back once I have saved enough (within 24 months). However this will attract the second home stamp duty (I believe).

So can I give my Dad my money, he then purchases the house, then he gifts the house back to me? I understand that there is a 7 year rule, but what if my father does die - then what are the consequences? Or because it is less than £325k then it is exempt?

Is there an option to do a joint purchase instead?

Many thanks for your help.

ZiggyB

p00hsticks

Who is going to live in the property ?
This will have tax implications when the property comes to be sold, so worth considering

ZiggyB

My Dad will be living in the property

kidmugsy

I urge you to see a suitably qualified solicitor. DIY can be calamitous when housing interacts with CGT and IHT. Maybe he'll recommend that your father borrow £110k from you and buys the house. Maybe he'll recommend something else. But you presumably want your father in a house that will be secure for him whatever your financial future holds: if so the solicitor should be able to tell you how to do it.

00ec25

ZiggyB wrote: »

Hi
Please could somebody advise the most tax efficient way to purchase a property for my Dad. Our circumstances are as follows:

• I have £110k in savings
• My Dad has about £60k in savings
• The house we are looking to purchase is £160k

The ideal scenario would be that I purchase the home, my Dad lends me the £50k and I pay him back once I have saved enough (within 24 months). However this will attract the second home stamp duty (I believe).correct, it will

So can I give my Dad my money, he then purchases the house, then he gifts the house back to me? I understand that there is a 7 year rule, but what if my father does die - then what are the consequences? Or because it is less than £325k then it is exempt?
it will be his home, if he gifts it to you it will be exempt from capital gains tax but will remain part of his estate when he dies (GWR - gift with reservation) for IHT. Is IHT going to be an issue, you mention 325k but that is not his limit and you have not said what his total estate will be.

Is there an option to do a joint purchase instead? purchased for cash that is easily achieved but makes the entire purchase subject to higher rate SDLT and leaves you exposed to CGT on your share of the property

why is you being the owner the "ideal" scenario? are you looking for an investment for yourself or a home for your father?

xylophone

It might be worth considering lending your father the £110,000 and taking a first charge on the property.

He will then buy the house in his own name and live in it as his principal private residence.

He can repay the loan with or without interest as you choose - remember that interest would need to be declared for tax purposes.

You would have the loan agreement ( a private mortgage), drawn up by a solicitor.

Your father could choose to leave you the house in his will.

On death the value of any outstanding loan would be deducted from any IHT due and would have to be repaid before any legacies could be paid from the estate- with regard to IHT your father would have his personal IHT allowance and (if the house were left to you or another direct descendant) the family home allowance.

All this would be explained to you by your solicitor.

ZiggyB

why is you being the owner the "ideal" scenario? are you looking for an investment for yourself or a home for your father?

I considered it as "ideal" because I am aware that if my father needs care later in life then the home ownership would exempt him from receiving any local authority assistance towards this.

As Kidmugsy pointed out - I want the most secure and stable financial position for my father's retirement. Whether he owns it or I own it is unimportant except for ensuring that his future is financially stable.

Potentially the suggestion of the private mortgage sounds like the most suitable option at this time and I will consult my solicitor on it to find out more.

Thank you for your help.

00ec25

ZiggyB wrote: »

I considered it as "ideal" because I am aware that if my father needs care later in life then the home ownership would exempt him from receiving any local authority assistance towards this.

so you want to preserve your inheritance then.

yes if your father owns his home but has to move into a care home because he can no longer live alone in the one he owns, that will of course result in him being means tested and will take into account that his home can be sold. owning a home does not "exempt" him from council funded care, it simply means he has to pay towards it as well.

Your desire for your father to have a decent retirement seems to comprise ensuring that all he can afford to do is live in a council care home entirely paid for by the state - go visit one and then come back on here to say you are happy that is what your father will face whilst you get to keep his money.

ZiggyB

so you want to preserve your inheritance then. Honesty at last

yes if your father owns his home but has to move into a care home because he can no longer live alone in the one he owns, that will of course result in him being means tested and will take into account that his home can be sold. owning a home does not "exempt" him from council funded care, it simply means he has to pay towards it as well.

Your desire for your father to have a decent retirement seems to comprise ensuring that all he can afford to do is live in a council care home entirely paid for by the state - go visit one and then come back on here to say you are happy that is what your father will face whilst you get to keep his money.

Well I find that quite insulting. I'm giving back to my father an opportunity for him to retire in his own home. He has been supportive of me throughout my life, I have the opportunity to now be supportive of him.

If I was looking to put him in a care-home then I would not support his purchase of a house in the first place whould I?

We are discussing a scenario that I hope will never happen, but I think is prudent to plan for. State-funded elderly care includes "care in the home". I'm content my Father and I are investing in a house where it will offer that opportunity should the needs arise.

Thank you to all the other users who have provided constructiuve feedback. My goal was to be tax efficient, not pay needless fees, and provide a long term solid financial plan. Unfortunately, with insinuations from 00ec25 which question those motives and my personal values, I'll be hesitant on posting again in this forum.

xylophone

If your father is living in his own home (whether or not he owns it) and requires care in his home, he may still need to pay for it, depending on his means.

If your father owns his home and needs to go into care, then (unless entitled to continuing care through the NHS) in one way or another, his home will be used to finance the care, unless his income and savings are sufficient to meet the bills.

If you had lent him money as above and the house had to be sold, then you would be entitled to be repaid before the proceeds were used for funding.

ZiggyB

xylophone wrote: »

If your father is living in his own home (whether or not he owns it) and requires care in his home, he may still need to pay for it, depending on his means.

If your father owns his home and needs to go into care, then (unless entitled to continuing care through the NHS) in one way or another, his home will be used to finance the care, unless his income and savings are sufficient to meet the bills.

If you had lent him money as above and the house had to be sold, then you would be entitled to be repaid before the proceeds were used for funding.

Thank you for clarifying on this. Hopefully we will not be in that position, but I think it's important to anticipate these things.