Should we give our flat to the inlaws?

lcauk

My wife and I are in a dilemma as we plan to buy a new home and are
trying to decide if it is a good idea to gift our current flat to her
parents for free to give them a more secure, settled retirement, or
would it make better economical sense for us to retain ownership and
rent it to them? There are implications for SDLT for us in the short
term and their claiming housing and care support in the long term.

We are in our 30s and live in Manchester and own our flat outright. We
bought it for £120,000 6 years ago and have just paid off the mortgage
last month. We are now planning to move to a house which will cost us
£430,000. We want to keep it but can’t decide the most sensible and
economical way to keep it. The key factor is my wife’s parents. We are
worried about how they will finance their retirement.

Keeping the flat more than doubles the SDLT we would pay on our new
home (£25k rather than £11k if we dispose of it). But gifting them the
property means they would potentially forfeit access to helpful
benefits in their retirement and could see us lose it completely in
the long run if they need to sell it for care costs.

They have savings but no assets. They are both 64, they work full
time, they live nearby and rent a flat for £800 pcm. Ideally we would
like them to be winding down so they can enjoy retirement, spend more
time with us as a family and also be around to help out with child
care. We get on well and see them frequently.

We believe the flat is a good investment worth holding onto. It is in
a popular building in the city centre, worth about £160,000 now to buy
and £900pcm to rent. In all of this, my wife is quite determined to
keep the flat. She likes it a lot. She also earns a lot more than me -
about £100k a year, while I’m on £30k. Our options as we see it:


We gift them the flat for nothing. They now have the security of
knowing they have a home for as long as they like. Could they give us
an informal rent or gift of money every month? This offsets us giving
up the full potential £900 rent pcm. Potential problems with this
scenario.

They can’t claim any housing support if they own a house so they will
miss out on that money in retirement.

Again, if they need any support with care when they are older they
will have to sell the flat to afford it as care is means tested

We are effectively subsidising them. If they give us £500 a month,
this is £400 short of the full rent it is worth so we are losing £400
a month.

The other option is, we keep the flat and rent it to them. We suffer
the double SDLT now but in the long term, they will be entitled to
housing benefit support and care support. We can still offer them a
reduced rent.

Any advice much appreciated

SandraX

Keep the flat, simples, but give them the security of a lifetime rental guarantee at a fixed price. The rental lifetime guarantee would ensure that should your circumstances changed and you needed to sell, eg divorce, loss of job/etc, then new buyers could not kick them out or increase the rent

Btw what floor is it on, i ask as stairs get difficult over time and what are the service charges.

p00hsticks

lcauk wrote: »

They can’t claim any housing support if they own a house so they will miss out on that money in retirement.

But they wouldn't actually see that money, would they ? It would go towards their rental costs, so it would be their landlord who misses out on it (at a cost to local taxpayers, including your in-laws and yourselves).

lcauk wrote: »

Again, if they need any support with care when they are older they
will have to sell the flat to afford it as care is means tested

Things could change, but as I understand it currently, as both are over 60, the home would be disregarded if the first needed care - it would only be if the second also needed to move out of the house into care that the house value would be considered. And statistically going into care is still less likely than not.

lildoonbuggy

Aside from the obvious downsides of gifting the flat there are a number of costs and tax implications you need to get advice on. For one your parents in law may need to pay stampduty on the value of the flat, whilst you may struggle to claim stamp duty relief if your £160k gift is classified as deprivation of capital. Get yourself a good conveyancer, or simply rent out the flat to your inlaws at a nominal rate.

Red-Squirrel_2

If you give them the flat, you have to actually give them the flat, fully, not expecting to get it back as an inheritance later on. If it goes towards helping them pay for care later on, that's good, as relying on local authority care can be problematic. If they want to release equity, or sell it to go into sheltered, they have to be able to do that without feeling they are going against your wishes.

If you rent it out to them for a reduced rate, they probably won't be entitled to housing benefit anyway as it wouldn't be a true commercial tenancy. You would also be fully responsible for all the maintenance, the service charges, ground rent and any big works that are done by the freeholder at a later date. Which building is the flat in?

If I were you I would sell the flat and give your in-laws some money to do as they want with. If buying a city centre flat is right for them, they can spend it on one they choose.

If you want to keep the flat, get a proper tenant in paying market rent and act as proper responsible landlords. If you want to give your in-laws some of the money you make as a gift that would be very kind of you.

Either way your wife will have to drop her emotional attachment to it and start focusing on getting attached to her new home!

Cakeguts

You in laws are better off renting but they need to move to a retirement flat if they can. I would suggest that they try their local council.

moneyistooshorttomention

That's very generous of you to want to help them like that.

Personally, if I were in your position and feeling that way - then I'd rent the flat to them at a nominal rent. That being you're either feeling generous (so the nominal rent - maybe £100 per month) or you're not (so forget the whole idea and sell the place).

I would be wary of giving them the place - courtesy of worrying the Government would grab the lot at some point if either of them ever needed to go into a care home ever. If one of them needed to go in - the other would be safe to stay put in the flat till they died (or needed to go into a care home). But, at some point, if even one of them went into a care home - then you'd all land up just losing the flat to the Government.

Personally - it would stick in my craw to know the Government had taken advantage of my generous gift and decided to re-route it in their direction. If you just let them rent the flat for a nominal sum - then that can't happen.

Though, obviously, hopefully neither of them will need to go into a care home. It's not a given that with age cometh going into a home. Many don't need to. Many wouldn't - even if they were deemed to need to and others would in their position.

unforeseen

Personally - it would stick in my craw to know the Government had taken advantage of my generous gift and decided to re-route it in their direction

so you think the government/council should fund their care home completely and not use money they have tied up in an asset?

da_rule

A further option may be to set up a limited company and transfer the flat to the limited company. You would pay the extra stamp duty on this transfer but not on the purchase of your new property so it may save you money overall.

You can then rent it out. It also limits your personal liability to any tenant you have.

No cash would physically have to move, the purchase price could be recorded as a director or shareholder loan.

Marvel1

lcauk wrote: »

We gift them the flat for nothing. They now have the security of
knowing they have a home for as long as they like. Could they give us
an informal rent or gift of money every month? This offsets us giving
up the full potential £900 rent pcm. Potential problems with this
scenario.

They can’t claim any housing support if they own a house so they will
miss out on that money in retirement.

Again, if they need any support with care when they are older they
will have to sell the flat to afford it as care is means tested

We are effectively subsidising them. If they give us £500 a month,
this is £400 short of the full rent it is worth so we are losing £400
a month.

So not gifting, its still renting?

moneyistooshorttomention

At £500 a month it would still be renting - albeit a cheap rent.

My suggestion of £100 a month would be a nominal rent and should be around about the amount needed to cover actual costs I would have thought - but not make any profit at all.

Or, alternatively, look at it as the money tied-up in the flat being a form of savings that would give just enough money (at a very nominal rent level - ie not more than that £100 a month) in order to be a reasonable level of savings income. Certainly a much higher rate than is currently payable in 2018 on standard savings accounts with their virtually non-existent interest.

Personally - in that situation - I think that is exactly how I would regard it personally. I'd let them have the flat at that nominal £100 rent a month or less and regard myself as having kept that money tied up in the flat as savings. I'd be able to cash in my asset (that flat) when the second one of them died eventually and decide whether to keep the flat or sell it at that point.

Logically, OP would expect to inherit the flat back again when they die - but keeping the flat in my name and only charging them a VERY nominal rent would ensure that I definitely did get my asset back again come the time and it didn't just head into the government's coffers (ie used for any care home fees that arise).

Relatives safely housed and at a very cheap cost and no risk of the government getting my money.

As for SDLT - OP will just have to suck that up. That tax/loss of money to the Government is a fair one. They've done very well to have paid off a mortgage in six years and to now be buying a very reasonable standard house. One of them on reasonable income and one on good income. So definitely fair enough to pay that SDLT and not try to be greedy and find a way round that.