Making the best of a bad situation..(Pension/Right To Buy)

domjon1

enthusiasticsaver wrote: »

Ah, is that the reason they have not bought before as FIL no good with money? Do you know what he earns?

HGV driver so guessing i.r.o. £20-24K.

Yeah not too financially literate. I think I'm slowly talking myself out of the idea tbh...maybe I'm projecting my own personal appetite for risk on to them unfairly.

Obviously I want to do the right thing by them but there are limits to the amount of responsibility I want to feel. If FIL passed early and MIL was afflicted by high ownership/maintenance costs it might be an unnecessary stress. 'Whats the point of changing horses in mid stream' n all that.

It's certainly good to talk though so thanks for showing an interest.

domjon1

enthusiasticsaver wrote: »

The tax allowance is £11500 and the higher rate threshold is £45000. Assuming FIL earns £20k up until retirement in February then claims 2 months of pension until April this should mean he can take the 25% tax free on each of the pots (or combine) and a further £15-£20k in 2017/2018 and pay the £3000-£4000 tax bill. Then he can withdraw the remaining balance after April 2018 which at least means it is all paid at standard rate tax.

Thanks that's useful to know, I wasn't sure whether splitting it over 2 tax years was feasible or not.

TheShape

Could the state pension not be deferred until the 19/20 tax year taking that income out of 18/19 altogether and reducing the tax on the pension withdrawals further?

Of course the more complicated it gets, the harder it is to explain to someone who isn't financially literate. There are many things I do/would do that I wouldn't recommend to others even though they'd be better of financially.

domjon1

TheShape wrote: »

Could the state pension not be deferred until the 19/20 tax year taking that income out of 18/19 altogether and reducing the tax on the pension withdrawals further?

Of course the more complicated it gets, the harder it is to explain to someone who isn't financially literate. There are many things I do/would do that I wouldn't recommend to others even though they'd be better of financially.

Isn't that absolutely the nub of it! Just seems like a total no-brainer to me, even given the tax disadvantages. Recommending it to someone else's parents..different ball game.

Regarding the specifics of deferring the state pension...I'd have a hard time selling the FIL zero income for a year I think.

enthusiasticsaver

if it wasn't for the £6k tax bill I think it would be a no brainer as they would have a few thousand spare for upkeep and no rent to pay. If FIL tends to go through money like water putting the pension into their home again seems sensible considering it will save them £375 per month and he won't have lump sum to splurge. Difficult when it is not your parents though. I would lay out the maths of it and model various scenarios according to whether they buy or don't and what happens if either of them dies. Maybe look into benefit situation too.

Jenniefour

Most glaring issues (possibly pitfalls) I can see of the RTB option are:-

- are there going to be any big bills for repairs/refurbishment at any point?

- what would service charge be?

- are parents going to be able to manage costs which are no longer responsibility of the council e.g. new boiler?

- when the property needs to be sold in future, for whatever reason, is it likely to mortgageable or are you/they going to need a cash buyer?

Keep_pedalling

I would be concerned that they appear to have very little in savings that could be used for an emergency fund. The very well could have 20-30 years of potencial house repairs to cover, including big ticket items like a new boiler or roof repairs.

domjon1

Jenniefour wrote: »

Most glaring issues (possibly pitfalls) I can see of the RTB option are:-

- are there going to be any big bills for repairs/refurbishment at any point?

- what would service charge be?

- are parents going to be able to manage costs which are no longer responsibility of the council e.g. new boiler?

- when the property needs to be sold in future, for whatever reason, is it likely to mortgageable or are you/they going to need a cash buyer?

No Service charge, is likely to be mortgageable but they also have a son who has inherited the lack of financial acumen and the possibility of leaving him some security might also appeal to MIL's maternal worrying tbh

Repair/Refurbishment costs are an issue sure...not just whether they could be financially afforded but getting used to the real world of trying to get hold of a plumber on a sunday instead of just ringing the Housing Association when the !!!! hits the fan. The costs/responsibility that comes with home owning is my prime concern tbh.

Another Pro i thought of is security of tenure...in the event of FIL passing early and MIL attempting to claim housing benefit or suchlike there might be the prospect of bedroom tax/forced move to a smaller council property.

domjon1

Keep_pedalling wrote: »

I would be concerned that they appear to have very little in savings that could be used for an emergency fund. The very well could have 20-30 years of potencial house repairs to cover, including big ticket items like a new boiler or roof repairs.

yeah I hear you. The house is in reasonable nick atm but 30 years is a long time.

Of course without the rent payments they could technically afford to put away a sum each month to cover potential costs but it would be unlikely to happen in reality.

kidmugsy

domjon1 wrote: »

Of course without the rent payments they could technically afford to put away a sum each month to cover potential costs but it would be unlikely to happen in reality.

That's the nub of the problem. Owning a house is for grown-ups but in financial matters your FIL is a child. Maybe look on the rent they pay as being insurance against huge repair bills and the prospect of ending up homeless.

Frustrating, innit? But we are as we are.