Buying parents house under market value

Clownfish68

Hi, just researching the above topic and practicality of doing this and what options need to be considered. 
Unfortunatly my father has been diagnosed with cancer that it is inoperable and the only treatment available is chemo to maintain the cancer. We hope he will live a number of years but I am thinking of worse case scenario if something happens sooner. I dont want my mum in a large house on her own and simarly if something was to happen to mum I want to be on hand to help care for my father. I dont want either to go into care after seeing my grandmother in that position growing up. 

The idea i have is essentially buying my parents house below market value with the intention of extending the existing house (through additional purchase of land) to provide 1bed, bathroom, living space, kitchen and garden or extension of existing detached garage in to a self contained annexe which would share the rear garden. 
I place the value of my parents property at around £200-£225k. I have around £100k equity in my house which I intend to sell to live with mum and dad. 

This will sound callous but im just looking to plan ahead and care for my parents going forward. The £100k  would in effect become my brothers future inheritance and I in turn receive nothing owing to buying at discounted price. I would then pay £50k for the necessary building works to create the annexe. Parents would live rent free and we would pay all  bills relating to the property. If we did this we would not have a mortgage and would be able to help care for family whilst also providing them with the opportunity to spend time with our 1 year old which is especially important to me due to Dad's health and the restrictions Covid has placed on them having time with our daughter this past year. 

What implications would there be in terms of capital gains tax, inheritance tax etc. Their home has been their private residence having bought it in the 1980s for around £17k. So not sure if capital gains tax is relevant in this scenario due to size/primary home/never used for business etc. Or implications of tax on my brother and I. 
Also other option could be move in with mum and dad  and pay for the work myself with intention of buying my brother out once the they are both no longer with us as the property/assets wouldn't be liable for inheritance tax.

I'd really appreciate any advice and I dont like to think about these issues as they are so morbid but ultimately I want to ensure both are well cared for. 

Browntoa

Market undervalued means councils viewing as deprivation of assets if either requires care . They can treat the assets as having full market value.

Retaining the house , if it is in joint names , means it a mandatory disregard for care home fees ( not an asset ) if either spouse survives and lives there

sevenhills

Could a will be made and the house be put in a trust, I believe it's worthwhile if the house has a high value.

tacpot12

Don't worry about the discussion being seen as morbid. We all die, and we are all likely to need care. Your parents are lucky to have someone that wants to care for them.

Have you discussed this with your brother? You are creating a complicated situation with plenty of opportunity for novel
problems. 

I agree that the best solution is to leave your parent's house in their ownership, you sell your house, and spend as little as possible to allow you to move in with your parents. Do you really need an annex, or could you add an en-suite bathroom to a existing bedroom? If the 'large' house has three bedrooms, it sounds like this would be enough for your parents, you and your daughter to each have their own bedroom. An annex won't add any value to your parents home, and might make it less saleable. A local estate agent could give you advice about changes that would add value and those that will not, or will make it harder to sell.

You can invest the equity you had in the stock market via an ISA (although you will have to drip feed the funds into the ISA and will have to pay CGT on any gains on investments held outside of the ISA). Eventually when your parents no longer need the house, your investments can be sold to either buy your brother out, or combined with your inheritance to buy yourself a new home. 

lookstraightahead

Whatever you do, you have to take into account that an inheritance is after someone dies, before that it is gifting / deprivation of assets.
also that whatever your intention, professional cars may be needed. No one particularly wants to see their loved ones in a care home. Sometimes it really is the only safe option,

csgohan4

Also ensure getting a power of attorney when they still have capacity. It will make handling the admin side of things much more smoothly. You won't be able to access their bank accounts unless you have it or decide financials matters on their behalf

xylophone

It might be worth considering  moving in with your parents, selling your property and lending the £100,000 to your parents against a first charge on their property.

They could then use the cash to make whatever alterations they wish.

They would sever the joint tenancy so that they are tenants in common.

Each would make a will leaving his/her share of the property to you and your brother but with an  Interest in Possession to the surviving spouse.

https://techzone.adviserzone.com/anon/public/iht-est-plan/Tech-guide-IIP-trust-taxation

On the death of the second parent, you are owed your £100,000 and your share of the parental property.

You buy out your brother's share.

Do nothing at all before consulting a  firm with a  solicitor expert in wills and trusts and in conveyancing.

csgohan4

xylophone said:

It might be worth considering  moving in with your parents, selling your property and lending the £100,000 to your parents against a first charge on their property.

They could then use the cash to make whatever alterations they wish.

They would sever the joint tenancy so that they are tenants in common.

Each would make a will leaving his/her share of the property to you and your brother but with an  Interest in Possession to the surviving spouse.

https://techzone.adviserzone.com/anon/public/iht-est-plan/Tech-guide-IIP-trust-taxation

On the death of the second parent, you are owed your £100,000 and your share of the parental property.

You buy out your brother's share.

Do nothing at all before consulting a  firm with a  solicitor expert in wills and trusts and in conveyancing.

OP , if your unsure, take legal advice, especially if the estate is large. 

You could DIY to changes tenancy to TIC, I did it for my parents and was very simple. However Bare in mind CGT will need to be paid on the portion left to you which you are not living there. 

It is not as simple as it seems and you need to understand the pros and cons

pbartlett

These are the thoughts that come to my mind. For simplicity, say the house is valued at £200k. You give your parents £100k and the house is transferred into your name as your main and only residence ie you live there going forward.

1. there is no CGT for your parent to pay, and nor for you going forward (main residence)

2. stamp duty will be charged on the market value ie £200k

3. your parents will have essentially given you a gift of £100k so if they die there may be a potential IHT liability depending on how long they live and what other assets they have.

4. ditto if they give your brother the £100k cash they got from you (note the IHT threshold of £325k so if they don't have much else there most likely will be no IHT due anyway)

5. care home fees - if council care home is needed, the whole transaction may be looked at and you may well have to pay care home fees. However, you may have had to pay these anyway from the estate so may not make much difference

6. if your parents ever have to claim means tested benefits then if all they owned was their house they may well get them but if they have sold the house and given away £100k to your brother then they probably would not get them

greatcrested

Two things are needed:

1) POA. Arrange it now while they both have capacity

2) professional advice from someone (solicitor, accountant, financial adviser) with experience of wills, probate, tax, and planning for the elderly.

AnotherJoe

IHT is an irrelevance here given the values. And so is care home fees for dad. Maybe mum but that's not seemingly an issue for years to come. No mention of her needing it anyway. 
Being very blunt, your dad is dying of cancer, does he really want his last years to be full of builders and disruption and angst about PP being rejected or building difficulties and so on ? 

Your plan calls for buying extra land getting PP building an extension on their house. This could could take a couple of years even if it all goes swimmingly. 

Lastly, and another practicality, you talk about caring for mum / dad but it sounds as if it's just you? And a child? Providing full time care for one or two adults is very very difficult for a single person. But you've got a child ! You've got to be practical here.
Why not find a house that's already got an annex and jointly purchase it? Ora bigger house that's practical for two families  Or move very close to them (presumably they live some distance away at present?)
You have my sympathy but I think you've been hit for six by this situation and aren't thinking clearly. How old are your parents ?