Retirement income

baa_humbug

As all newbie posts start the same way, I'll apologise if this is in the wrong place or if it has already been asked. Can I request that someone points me in the right direction of the answer if the above is correct....

A case study question really. Mum and dad own their house (£300k) outright, they also own another house (£150k) outright that they rent to my Gran for a small amount (circa £200 a month). Mum's in her 50's, Dad's in his early 60's and the question of retirement income has come up. They have an emergency fund available in the region of £30k.

I've got a sister and we are looking at what would be the best way of getting as much money for my folks as income as possible (neither parent is interested in having a large amount in deposits other than emergency funds, they just want an income).

I'm looking for ideas/opinions from anyone that can help on possibilities. I don't know the benefits of, for example, Dad selling my Grans house to me then using the money to secure an income (high interest accounts, guaranteed income bonds etc). Or whether it would be better to cut out the bank completely and for Dad to gift me the house and for me to pay him the money directly that I would have had to pay for a mortgage?

Apologies that I've gone on a little, just trying to give you as much info as possible at the start.

I'm hoping I can get an opinion on the 2 options above, plus further ideas with any pro's and cons (big ask, but as the saying goes "Don't ask, don't get")

Cheers

EdInvestor

What pension and other income do they have/ expect later?

It would possibly make sense for them to raise an interest-only BTL mortgage on the 2nd property where payments are equivalent to the rent that Granny is paying - they can claim that mortgage interest against the rental income which will mean they pay no tax.

Later on when they are a bit older they could raise around 150k on their main property through equity release, but they would be more sensible to consider trading down to a cheaper property and raising capital to invest for income that way.

Much may depend on how long Granny can manage on her own.

baa_humbug

Thanks for the reply, appreciate your time.

Gran will be in the house for another 5 years tops. Dad has no pension, mum has a final salary from one company and another PPP that she is currently paying in to with her current company along with their contributions.

I'm keen to keep Grans house so seeing as neither of my parents are retiring soon would it work to wait until Gran moves out, buy the house with an interest only BTL mortgage from my dad which he could then use for income OR could it work that he simply gifts me the house and the market value for rent of circa £500 per month could find it's way somehow to him as a form of income? I'm sure there are tax liabilities for the second option but as previously mentioned this is all a bit new and scary at the moment....

margaretclare

Why are you so certain that 'Gran will be in the house for another 5 years tops'?

One thing that life has taught me is that few of us can be certain of things like where we will be in 5 years' time.

Margaret

baa_humbug

Thanks for that Margaret, and although I am hoping that Gran will live for many more years to come (she's 91 currently), I doubt she will be able to live on her own for much longer, and as such for planning purposes, I think 5 years is an acceptable figure.

Did you have any options or opinions concerning my original post? (or was Gran paying you to stick up for her )

EdInvestor

baa_humbug wrote: »

Thanks for the reply, appreciate your time.

Gran will be in the house for another 5 years tops. Dad has no pension

Wot, not even a state pension? If he has no other private pension and has been working all his life, he may be in line for a state pension of around 10k p.a., so best to check.This is important for tax reasons.

If Gran no longer needs the house for whatever reason and it was sold for 150k the parents could expect to invest that money for a 5% return. That would be worth 625 a month if it was tax free ( this depends on their other income and how the money is invested.)

So your idea doesn't look to be optimal from your parents' point of view.

margaretclare

baa_humbug wrote: »

Thanks for that Margaret, and although I am hoping that Gran will live for many more years to come (she's 91 currently), I doubt she will be able to live on her own for much longer, and as such for planning purposes, I think 5 years is an acceptable figure.

Did you have any options or opinions concerning my original post? (or was Gran paying you to stick up for her )

No, Gran wasn't paying me to stick up for her, but as I'm only 19 years younger than Gran and have every intention of staying in my own home until they carry me out feet first, I empathise with her age-group and I tend to find that people are willing to make assumptions about what we should/could do.

That said, it doesn't sound to me as if your parents are going to have any worries about a retirement income. They could consider downsizing , of course, from their £300K house, hopefully to somewhere smaller, more convenient and more manageable, and free up some of that money which is currently tied up in their present home. Investing money to produce an income is a big topic and I am no expert - there are experts on here who will give you/them good pointers of the way to go.

I can't understand why your Dad has no pension at all - not even state retirement pension? Actually SRP is not to be sneezed at and it forms the basis of most people's retirement income, whatever else they have on top of it.

Although you say Mum and Dad aren't interested in having large amounts on deposit, we all need a bit of a 'safety net' rainy-day money, to cover unexpected expenses, like a new fridge-freezer. They could both max out their cash ISA allowance and this is easily-accessible but accrues interest.

HTH

Margaret