Renting to my father

xylophone

My daughter (8 years old) was recently left some money

Then you need to look very carefully at the terms of the will (you might wish to take advice from a STEP qualified solicitor) in order to establish the type of trust in which this money was left and what powers you have to deal with the inheritance.

If the inheritance has "indefeasibly vested" in your daughter, then this will be a bare trust and your daughter will have the absolute legal right to access and control at the age of 18.

She cannot hold real estate in her own name as she is not of age and you would hold the property in bare trust.

The income would be beneficially her income - as it is property income a return to HMRC might be required.

If the money has not indefeasibly vested, and the terms of the will give the Trustees absolute discretion, then you have a discretionary Trust - the rules for taxation are quite complex.

It seems to me that you should take expert advice before proceeding.


Read carefully

https://www.gov.uk/trusts-taxes/types-of-trust

https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem1568

gash

xylophone wrote: »

Then you need to look very carefully at the terms of the will (you might wish to take advice from a STEP qualified solicitor) in order to establish the type of trust in which this money was left and what powers you have to deal with the inheritance.

Thanks for that....this is where the Will got complicated. I didn't think I'd need to mention this, but here goes in case it makes a difference.........it's been going on 4 years.


There was no mention of money in the Will. My granddad left me his house, which in the will stated 'in trust' for ten years and I had to live in it for that period. After the ten years ownership went to me and my daughter.


It turned out there was no actual 'Trust' so I was free to sell the house if I wished (I didn't want to live in the house because it was quite a long way from where I work etc). So I have sold it. In keeping with the original wishes of my granddad I am still splitting the money 50/50 between me and my daughter and 90% sure I'll invest my daughters 50% in a house. This seems a sensible thing to do, and I'm not too worried about the risk of her money being in a house, because according to the Will her money would have been tied up in my granddads old house anyway. Hope this makes sense

xylophone

You sold the property - did you sort out any CGT aspect?

It appears that half of the proceeds of sale belong to your child.

It appears that she has the absolute right to ownership of this money and therefore you hold it in bare trust for her.

She has the absolute right to access and control of the cash at the age of 18.

Your powers of investment of the cash held in bare trust are still unclear.

If a house is purchased then property income will arise - you may need to do tax returns for you and your child.

Are you aware of your responsibilities as a landlord?

In your position I would take expert advice before proceeding.

gash

xylophone wrote: »

You sold the property - did you sort out any CGT aspect?

It appears that half of the proceeds of sale belong to your child.

It appears that she has the absolute right to ownership of this money and therefore you hold it in bare trust for her.

She has the absolute right to access and control of the cash at the age of 18.

Your powers of investment of the cash held in bare trust are still unclear.

If a house is purchased then property income will arise - you may need to do tax returns for you and your child.

Are you aware of your responsibilities as a landlord?

In your position I would take expert advice before proceeding.

CGT? Sorry, not sure what this is.


My solicitor has fairly clearly given me the impression that because the Will was changed in the way I mentioned above, the money from the sale is legally mine, but obviously, I am still going to keep half for my daughter and invest it in the way I planned above.


My thread is really a question about things I need to think about when renting to my father, but it seems to have gone off track a bit.


However, Yes, I do need to brush up on my responsibilities as a landlord, but see above, I have done it before.


Thanks for your help.


EDIT: Capital gains tax, of course. Sorry. Anyway, I don't believe there is any to pay on my sale etc, because my solicitor made me aware I would only pay tax on any 'profit' I made on the house from the day probate was sorted out till the day of the sale etc. Houses in this area had not gone up in that short time.

gash

ruhe wrote: »

Thanks for sharing more of the details of your situation. Although you say the will turned out to be more complex the fact remains it got sorted out and you were able to buy a house for you and your daughter and "that is" the situation now.

Therefore to my way of thinking it's simple and is no longer really related to the will. Would the situation not now be analogous to if your child had been a child actress staring in a film and you had to act as sole custodian of her money.

So all you have to worry about is deciding what to do with the money that is 50% yours and 50% your daughters. There is no relation to the will any longer and playing the devils advocate even if there was who would contest the will? The will focuses exclusively on you and your daughter and the only reason for resorting to the terms of the will are if you and your daughter fall out

To my way of thinking you just have to make sure you safely invest your daughters 50%. If she gets to the age of 18 and finds there's not much left then you've got a problem. It seems to me that you couldn't really do anything better than what your doing as it's the closest fit to the exact intention of the will.

I'd be far more worried if you were investing it in stocks and shares or handing it over to a so called "expert investor" who would be only too happy to earn money from you

In summary it sounds to me that you already have "expert advice" because you already have a lawyer and in terms of a safe and prudent investment I couldn't think of a more safe and secure way to invest money than an unencumbered UK property rented out

These are exactly my thoughts. Thanks x

shortcrust

I look after my grandma's money which I guess isn't so different. In similar circumstances I'd feel it was my duty to get a market rent for the property.

gash

shortcrust wrote: »

I look after my grandma's money which I guess isn't so different. In similar circumstances I'd feel it was my duty to get a market rent for the property.

The property is the investment though, NOT the rental income. I've been a landlord before and having my father there as a low paying tenant who I can rely on, is far more important than someone paying 'market rent' but not taking care of the property, maybe wanting to be out after 12 months, damaging stuff etc.


My only reason for doing this is hoping the value of the house increases in the next 13 years (or at least doesn't go down), and improving the house with new windows......carpets.......combi boilers....etc etc with what rental income there is, and also helping my dad with him having somewhere more suitable to live. The whole point of having my dad in there is because I know he'll look after it, and that is far more important than rental income.




Thanks

00ec25

gash wrote: »

My solicitor has fairly clearly given me the impression that because the Will was changed in the way I mentioned above, the money from the sale is legally mine, but obviously, I am still going to keep half for my daughter and invest it in the way I planned above.

My thread is really a question about things I need to think about when renting to my father, but it seems to have gone off track a bit.

your thread is asking for help with a specific scenario, moreover, a scenario where it is now obvious you do not know what you are doing regarding the legalities of the cash you have, half of which may not actually be yours, it may be your daughter's - depending on exactly what the will said...

brushing off comment on the nature of the trust because you don't understand what you actually have is not going to help you. As has already been pointed out your daughter does not "get the money at 21" - it appears she already has it... in a trust whose operation you do not understand.

gash wrote: »

However, Yes, I do need to brush up on my responsibilities as a landlord, but see above, I have done it before. .

then read every word of every page and every link in G_Ms guide:
https://forums.moneysavingexpert.com/discussion/5180214/tenancies-in-eng-wales-guides-for-landlords-and-tenants

gash wrote: »

EDIT: Capital gains tax, of course. Sorry. Anyway, I don't believe there is any to pay on my sale etc, because my solicitor made me aware I would only pay tax on any 'profit' I made on the house from the day probate was sorted out till the day of the sale etc. Houses in this area had not gone up in that short time.

so did you or did you not actually calculate what your CGT liability was and what your daughter's cGT liability was because it does not sound like you did, it looks much more likely that you have just assumed there is no CGT for either of you...

3 simple questions:
what was the value of the property for probate purposes?
was any inheritance tax paid on your father's estate: yes or no?
how much did the property sell for?

00ec25

gash wrote: »

The property is the investment though, NOT the rental income. I've been a landlord before and having my father there as a low paying tenant who I can rely on, is far more important than someone paying 'market rent' but not taking care of the property, maybe wanting to be out after 12 months, damaging stuff etc.

My only reason for doing this is hoping the value of the house increases in the next 13 years (or at least doesn't go down), and improving the house with new windows......carpets.......combi boilers....etc etc with what rental income there is, and also helping my dad with him having somewhere more suitable to live. The whole point of having my dad in there is because I know he'll look after it, and that is far more important than rental income.
Thanks

nonetheless as (presumed) trustee of your daughter's money, you have a legal duty to act in the best interest of your daughter

that may not involve providing a low rent property to your father....

xylophone

There was no mention of money in the Will. My granddad left me his house, which in the will stated 'in trust' for ten years and I had to live in it for that period. After the ten years ownership went to me and my daughter.

It turned out there was no actual 'Trust'

How's that again??

My solicitor has fairly clearly given me the impression that because the Will was changed in the way I mentioned above, the money from the sale is legally mine,

It is a solicitor's job to give clear and unambiguous advice, not leave you with a "fairly clear impression".

If the will in any way left money to a minor then any "change" ("deed of variation"?) would almost certainly have required the consent of the court.

https://uk.practicallaw.thomsonreuters.com/6-386-4134?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1

If the money belongs to you rather than to your daughter then you have made a gift/ are about to make a gift to your unmarried minor child- in effect this counts as a parental settlement, which has its own tax aspects.

https://www.professionaladviser.com/retirement-planner/feature/2300647/how-not-to-fall-foul-of-parental-settlement-rules

I am not at all sure that you can rely either on your current adviser or your own knowledge - take a second opinion?