Another helping family with house purchase question

shinytop

For any acquantaince (no really, it isn't me!)

50s couple with 2 kids, mortgage paid off. Daughter owns a house, son doesn't. Couple are currently renting, money in the bank waiting for house purchase. Their plan is to gift money to son and for him to buy property with the cash as a FTB . They then live in it rent free until they're both dead, at which time son will give 50% to daughter and eveyone is happy. They say it saves stamp duty and kids would be inheriting the house anyway. I think it's a lot of trouble to save a few grand. I pointed out that son would also lose his FTB status but apart from suggesting son could kick them out and run off with all the money or give nothing to his sister when they pop off (which they won't listen to) I couldn't come up with anything else. Given the amount involved I doubt IHT will come into it. Are there any fatal flaws in this plan?

xylophone

Gift with reservation of benefit?


https://uk.practicallaw.thomsonreuters.com/9-382-5631?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

POAT?

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm44001

trailingspouse

They could easily be around for another 30 years - does the son really want to be tied down like this for that length of time? What if the house they buy is no longer appropriate for their needs?

And all the usual deprivation of assets stuff.

And how about just letting the son stand on his own two feet? And having become mortgage free, why do they want to complicate things?
Others will be along in a moment with more reasons why this isn't a good idea.

xylophone

Other thoughts - will the son be living in the house?

If not, it will not be his PPR and on sale there will be a CGT liability?

There is no mention of whether the son is married/intends marriage - supposing there were a divorce?

What happens if the son predeceases his parents ( a sad thought but an acquaintance has just died suddenly and unexpectedly at the age of 42) - is he expected to leave them the house in his will?

shinytop

Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.

What happens if the son predeceases his parents ( a sad thought but an acquaintance has just died suddenly and unexpectedly at the age of 42) - is he expected to leave them the house in his will?

yup good point and yes he would be expected to leave it to them.

AnotherJoe

shinytop wrote: »

Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.


yup good point and yes he would be expected to leave it to them.

I dont see the point of this then, at all. And worse, there's so many things that can go wrong, and so much other tax that will be paid by someone at some point, that I more than agree with you, its not just a lot of hassle its far more hassle than its worth and almost certainl;y it will cost more in the long run.

Pixie5740

shinytop wrote: »

Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.


yup good point and yes he would be expected to leave it to them.

How is this rouse going to benefit the parents at all. The son won't be purchasing the property to live in as his main residence so he cannot claim the SDLT relief for FTB. He won't be able to use a HTB ISA or LISA bonus towards the purchase of his first home.

If the parents are trying to arrange the situation to maximise the taxes paid to HMRC they are going the right way about it.

Cakeguts

It sounds as if they think it will get round deprivation of assets.

shinytop

The son won't be purchasing the property to live in as his main residence so he cannot claim the SDLT relief for FTB.

Ah right I hadn't realsied that was the rule. Neither do they, since the reason they stated they were doing it was to save SDLT.

It sounds as if they think it will get round deprivation of assets.

Hmm, yes that is very likely to be the case thinking about it and knowing them. I wonder how would this be viewed legally- someone living in a house that they had gifted to their child X years ago and had lived in rent free then needing expensive residential care?

xylophone

someone living in a house that they had gifted to their child X years ago and had lived in rent free then needing expensive residential care?

Well, they couldn't say that the reason for the gift was to give their son a home.

It would appear from what you have said that the value of the family home just sold would be within the family home allowance

https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

so a PET as reason for the gift would not wash.

They would not have paid rent so could not claim to have wanted to help him out financially.

What reason is left other than planning to avoid care fees?

Keep_pedalling

The whole idea is bonkers tell them not to be so stupid.