Buying property with an annex that my parents will live in

theartfullodger

Mrcsmrs said:

theartfullodger said:

Is the annex physically attached/part of main building?  It’s a separate building with a small fenced garden area of its own, albeit quite close to the main house. 

Are the two dwellings on separate utility meters (water, gas, electric) and different council tax accounts It doesn’t have any separate meters and isn’t currently rated for Council Tax either. 

Thanks 😊 

Any chance of any answers please?

xylophone

If it is a gift, it could also be considered 'Deprivation of Assets' so far as the local authority is concerned when assessing them for eligibility for funded care.

The only other relevant factor is that they will be making themselves dependant on you. Should the worst happen and you lose the property (repossessed by lender following job loss? Acrimoneous divorce?) they would be homeless.

But

They own their own home which they are thinking about letting out.

This is their major asset and they are not depriving themselves of it.

They might wish to think twice about becoming  absentee landlords though - more hassle than it's worth?

They appear to have spare cash - I can't see any reason why they should not gift their daughter a sum of money - it would be an outright gift and as such, the daughter can do as she pleases with it and that includes improving her home.

And with regard to IHT, considering that as a married couple, their allowances could be up to a joint £1mn and their estate is apparently worth around £300,000, there don't seem to be any worries there.

Presumably they also have income by way of pensions etc so are perfectly able to pay their way - indeed with this shared living, they might well be quids in?

Mrcsmrs

Mgman1965 said:

Make sure you read the info on here about becoming a LL (along with all the legal obligations) as that is what your parents will become if they let their old home out, as it's really not for the feint hearted or the elderly really. 

Thank you, we’re planning to go down the route of a fully managed tenancy with rent guarantee insurance so hopefully most of the issues arising would be dealt with by the agent. Should anything crop up that they can’t manage I’m prepared to step in. 



Also don't forget should the worst happen (divorce, repossession) it can take up to a year and a lot of expense to get difficult tenants out.
We won’t be at risk of repossession even if anything goes wrong with either of our jobs, and although I know you can’t predict divorce I’m reasonably confident it won’t come to that. My parents are really well set anyway, in that they’ve been careful all their lives so if the worst did happen for some reason they could easily afford to rent accommodation themselves whilst their tenants were evicted. Not that it’s ideal but it’s doable if it came to it. 

And don't forget, even the best, easiest going relationships (partners AND families) can break down acrimoniously. 

Yes, I totally agree here, though I would hope we’re pretty solid, getting to this point has been a long hard road for us all. Hoping now is the time to kick back and enjoy, all being well legally. 

Thrugelmir

Mrcsmrs said:

greatcrested said:

The money they pay towards the log cabin, and the extra annexe bedroom, could well be deemed to be rent in return for the accommodation, making you landlords and liable to declare this money as income to HMRC (plus other LL obligations).

Alternatively, it could be deemded to be a gift, subject to Inheritance Tax rules - either the '7 year' rule or indeed a 'gift with reservation' (since they will be living in the annexe).

It apears to me a grey area requiring input from a lawyer or accountant.

If it is a gift, it could also be considered 'Deprivation of Assets' so far as the local authority is concerned when assessing them for eligibility for funded care.

The only other relevant factor is that they will be making themselves dependant on you. Should the worst happen and you lose the property (repossessed by lender following job loss? Acrimoneous divorce?) they would be homeless.

They are both very healthy active 70 year old folk who lead active lives at the moment so I would hope we don’t have to consider a deprivation of assets scenario, 

Time will pass and they will age. The future needs to be carefully planned for all eventualities. 

Mrcsmrs

coachman12 said:

Hello Mrcsmrs, Sounds a nice family idea and one that is a lot more common than people realise----
quite a few "Granny flats", converted outbuildings ( such as coach houses, stables, etc) can be found on the market and much sought after. 
You say that you and hubby are "just about " to buy the property in question-----that probably means you have already instructed a solicitor : if so, you can chat about the additional matters raised in your post with him/her. It will prove much easier than you think.
The artfullodger's questions about whether the buildings are physically separated is relevant. 
As for the gift of a summerhouse, I am no solicitor and have such things done by professionals whether solicitors, accountants, financial advisers, tax advisers, etc, but I've had plenty of outbuilding conversions and moved money around as gifts often enough; and I take the simplistic view there will be no tax on £10,000  (your mother's annual allocation and your father's allocation given to you and your husband separately).
In any case, I don't think there should be any problem if the summerhouse aspect is dealt with by adding a legal contract/agreement  between you and your parents.
Your new home sounds nice, out in the countryside, and I wish you and your parents a long, healthy and happy time there.

Thank you, we’ve worked hard and been through a lot to get here! You’re right about the solicitor, we have engaged a property specialist to complete our conveyancing so I am going to approach him about these things, that said it’s quite difficult to get an answer that I understand from him quickly so I’ve tried here too! I’ve also suggested my parents speak to their financial advisor and explain what we’re trying to do and ask how we can do it to protect all of our family, my sister included. I never thought it would be so difficult to try to do something intended to be nice! 

Mrcsmrs

greatcrested said:

A 'gift with reservation' is a gift where the donor retains some aspect of it.

A more clearcut example would be where a parent gifts a property to their child (ie transfers ownership into the child's name) but continues to live in the property with the child's consent perhaps till death.

The 'reservation' in the gift is that the child does not get to use the gift (property) till much later.

In such a case, the value of the gift (property) would still be included in the parent's Estate on their death for Inheritance Tax purposes.

This is obviously to prevent all elderly people transfering all their assets to their children before death and thus avoiding IHT!

That makes sense, thank you. We’re not bothered about that side of it, we actually wouldn’t have worried about either a summer house or extending the annex had they not been moving into it. I suspect if anything it would have stayed empty until our daughter came home from Uni. I just want to make sure we don’t disadvantage either them or ourselves. 

Only other thing I guess I’m not sure about is why it’s relevant if the annex is a separate building or not? Does that make a difference to what we can do with it? It’s currently used by a relative of the seller as their home and has been for some time, so I don’t think the use needs planning permission but for what it’s worth it’s close to the main house but is entirely separate and self contained. It has its own entrance, kitchen and bathroom. 

Mrcsmrs

theartfullodger said:

Mrcsmrs said:

theartfullodger said:

Is the annex physically attached/part of main building?  It’s a separate building with a small fenced garden area of its own, albeit quite close to the main house. 

Are the two dwellings on separate utility meters (water, gas, electric) and different council tax accounts It doesn’t have any separate meters and isn’t currently rated for Council Tax either. 

Thanks 😊 

Any chance of any answers please?

The answers are next to the questions, I just didn’t know how to highlight them, but they’re all in the post you quoted. Sorry, need to figure out the bold bit! But yes, it’s a totally separate building but has no separate meters nor is it council tax rated. Thank you. 

coachman12

Mrcsmrs said:

coachman12 said:

Thank you, we’ve worked hard and been through a lot to get here! You’re right about the solicitor, we have engaged a property specialist to complete our conveyancing so I am going to approach him about these things, that said it’s quite difficult to get an answer that I understand from him quickly so I’ve tried here too! I’ve also suggested my parents speak to their financial advisor and explain what we’re trying to do and ask how we can do it to protect all of our family, my sister included. I never thought it would be so difficult to try to do something intended to be nice! 

Or, alternatively, given the worries you have about the summerhouse and annex extension, why not just go ahead with your purchase and sort out the ancillary stuff when you are nicely settled in. It really won't be as difficult as you are imagining. Once again, all the very best to you all and thx for replying to me (it's only the nice people who do that on this forum    ).

Mrcsmrs

Thrugelmir said:

Mrcsmrs said:

greatcrested said:

The money they pay towards the log cabin, and the extra annexe bedroom, could well be deemed to be rent in return for the accommodation, making you landlords and liable to declare this money as income to HMRC (plus other LL obligations).

Alternatively, it could be deemded to be a gift, subject to Inheritance Tax rules - either the '7 year' rule or indeed a 'gift with reservation' (since they will be living in the annexe).

It apears to me a grey area requiring input from a lawyer or accountant.

If it is a gift, it could also be considered 'Deprivation of Assets' so far as the local authority is concerned when assessing them for eligibility for funded care.

The only other relevant factor is that they will be making themselves dependant on you. Should the worst happen and you lose the property (repossessed by lender following job loss? Acrimoneous divorce?) they would be homeless.

They are both very healthy active 70 year old folk who lead active lives at the moment so I would hope we don’t have to consider a deprivation of assets scenario, 

Time will pass and they will age. The future needs to be carefully planned for all eventualities. 

Yes, of course but they have significant other assets and savings that their proposals for our property shouldn’t compromise anything they need for quite some time to come. I think they’re better off on pensions than they were working! That said, they’ll also be spending significant amounts travelling overseas to visit my sister, so I guess I wonder at what point their spending of their money can become anyone else’s business when it’s not being done to defraud HMRC or anyone else for that matter? Not that I’m trying to be difficult, I just don’t even consider the tax implications or legalities of buying my daughter a car for example, it’s just what families do to help each other so I’m a little bemused by all these potential implications from trying to make their lives easier, if you see what I mean? 

Mrcsmrs

xylophone said:

If it is a gift, it could also be considered 'Deprivation of Assets' so far as the local authority is concerned when assessing them for eligibility for funded care.

The only other relevant factor is that they will be making themselves dependant on you. Should the worst happen and you lose the property (repossessed by lender following job loss? Acrimoneous divorce?) they would be homeless.

But

They own their own home which they are thinking about letting out.

This is their major asset and they are not depriving themselves of it.

They might wish to think twice about becoming  absentee landlords though - more hassle than it's worth?

They appear to have spare cash - I can't see any reason why they should not gift their daughter a sum of money - it would be an outright gift and as such, the daughter can do as she pleases with it and that includes improving her home.

And with regard to IHT, considering that as a married couple, their allowances could be up to a joint £1mn and their estate is apparently worth around £300,000, there don't seem to be any worries there.

Presumably they also have income by way of pensions etc so are perfectly able to pay their way - indeed with this shared living, they might well be quids in?

Thank you, yes this was my simplistic view of it. They would let their house, fully managed with rent guaranteed by a letting agent, I’d pick up any issues and deal with them as needed (it’s been their family home for some time so whilst they understand it’s a good financial move to let it they actually don’t want to see it happening), in the meantime they both pick up their full pensions (much better off now than they used to be when working) and enjoy a worry free life where they can jet off to Australia to see my sister any time they please. 

If the letting thing doesn’t work out they can sell the property and put the money into savings or whatever they choose as an investment, my thoughts were that they would struggle to see anything like the same return on their money if they sold as opposed to renting, but their financial advisor will discuss that with them. 

It seems almost as if by trying to do a selfless thing, ie let them live on our property where we won’t even notice any costs from them, it’s almost assumed (not by this forum but by the council, outsiders etc) that there’s some dodgy benefit in it for us. I supposed we like their company and there’s the benefit of my mum being one of the best cooks ever so free apple crumble whenever we like counts as a benefit, but there’s nothing kore to it than that and I don’t think anything of spending money on my daughter, so I wonder if the general assumptions make the situation more problematic than it needs to be?