Elderly parent- pooling money to buy house with self contained annexe

An_honest_individual

Following the death of my father last year my elderly mother feels that her house is a burden to her and wants to move in with us. Currently, her health is ok but having not really had independence before she is jeen to support the move financially to make it happen. - this will mean purchasing a new property with a self contained annexe.
I am an only child and the whole of my mother's estate will pass to me on her death. Her house is valued at c£335K and she has savings if c£75k; she is looking to put the full value of selling her property into a new purchase. We are looking at houses c£450k which will enable us to be mortgage free or possibly just a very small mortgage depending on the work required on the new purchase. I would be a joint owner on the new purchase with my husband; my mother would not be on the deeds and requires no interest in the house. We will also get an agreement drawn up in case of the unforeseen e.g divorce etc.
We understand the risk re deprevation of asset/care fees - and it is my mother's recorded wish in the LPA tgat she remains at home until a doctor advises it is not in her best interest.
My understanding with the values involved is that inheritance tax will not be an issue but I am less sure re pre owned asset tax. Can anyone provide further clarity?

Cakeguts

How well do you get on with your mother?

Keep_pedalling

Under no circumstances should she do this without maintaining a financial interest in the new house.

Apart from the issue of deliberate deprivation of assets, her security will be at risk should you pre decease her, run into finanancial trouble, or get divorced.

G_M

Pre owned asset tax? Are you thinking of Capital Gains Tax?

What is the thinking behind the plan for you and husband to be joint owners and mother to have no legal interest in the proprty? If a mortgage was involved, I could see potential issue if she were of an age where a mortgage wuld be difficult, but this does not apply here.

Is the intention that by gifting you the money to buy the property now, rather than leaving itt to you later in her will, Inheritance Tax can be reduced (provided she survives 7 years)?

This will not work - because she will be living in the property, the £335K she gives you for the purchase would be a 'Gift with Reservation'. Plus as you say, under current IHT rules, and with her current assets, IHT will not apply.

But I can see no other reason she should not jointly own with you - maybe I'm missing something?

And the downside is she leaves herself vulnerable in a whole host of ways. You say

will also get an agreement drawn up in case of the unforeseen e.g divorce etc.

but

a) it would be very hard to anticipate every possible eventuality
b) the legal validity of such an agreemnt may not stand up in the face of competing legal claims

00ec25

G_M wrote: »

Pre owned asset tax? Are you thinking of Capital Gains Tax?

no, OP has quite rightly identified there is a possible risk of POAT rather than IHT since mother has contributed towards the purchase price, yet continues to reside there, so continuing to benefit from her own money.

The key to understanding POAT however, is to appreciate it is the fall back tax, GWR always takes precedence over POAT

https://www.stoneking.co.uk/literature/info-sheets/guide-pre-owned-assets-tax

OP, as you expressly state it will be a self contained annex, POAT won't apply. However, as G-M says, the money paid by mother is a GWR and will remain part of her estate until she dies.

Perversely, if she moves out of the property and then lives for 7 years afterwards, the money will then leave her estate as it would then simply be a gift, not a GWR.

An_honest_individual

Thank you for all your responses which are all fair and useful.
We are going into this arrangement with eyes wide open - we can't protect against all eventualities and are fully prepared to make arrangements to pay care fees if the situation require. We may need to have a mortgage at some point to accomodate work on the house so again are trying to ensure this can happen without issue.

martindow

An_honest_individual wrote: »

are fully prepared to make arrangements to pay care fees if the situation require.

Are you sure? Nursing home fees can be over £1000 per week. You never know what may happen and you don't want to be in a position where you are obliged to cover these for a long period.

LadyDee

I cannot imagine any solicitor expressing anything other than severe reservations about handling this transaction in its current form. "Fully prepared to make arrangements to pay care fees" .... What would happen if you and/or your husband were not in a financial position to pay the fees through your own ill health for instance?

So much could go wrong here.

Thrugelmir

An_honest_individual wrote: »

We may need to have a mortgage at some point to accomodate work on the house so again are trying to ensure this can happen without issue.

Then your mothers financial interest and occupancy would pose an issue for mortgage lenders.

lookstraightahead

We deliberated over this exact same position a few years ago. I hate the idea of a home, but I also could not be a full time carer, and in the case of dementia etc no way would I cope. Care fees as stated above can be £1000 a week and people can rightfully live in a home for years and years. As you know there is also deprivation of assets or at the very least your Mum would hsve limited choices of care because of having no money.

We did not go this route in the end. Have you considered buying two houses is the same street?

Larac

OP -have you considered some form of 'sheltered housing' for your Mum, near to where you live?. She could then 'gift' you some money in the interim. Sheltered housing is often very reasonably priced and could offer the support and community your Mum may need. My late Mum downsized from the family home when my Dad died and moved nearer to family. It worked for around 7 years, until Dementia came to haunt her and the family. Nobody has a crystal ball, but when Mum's dementia progressed she initially lived with me, before needing specialist care in a CH. Living with a family member in the latter stages of dementia is very hard and many carers 'burn out' in the process and make themselves ill. In my Mum's case she had the money from the house sale, which paid for her CH fees. Thankfully she did as her CH fees were £800 a week. I would urge you to really think through the implications of what your are looking to do.