Accepting money from parents to fund an annexe/larger house

Soozegirl

Hi this has probably been covered before, but some advice needed please!  My parents moved back from abroad about 5 years ago and currently live with my sibling.  They do not own a property and have savings of around £80k (no other assets|) which they want to give to me (or my sibling) to fund an annexe/larger house as the living conditions at present are too cramped and they want a bit more space.  They are in their 80s but in good health and are showing no signs of needing care.  Their only income is my Dad's military pension and their state pensions.  If they were to need care in the future, would the authorities be able to insist that we 'gave back' the £80k they put into the house?  I presume as the amount is well below the Inheritance Tax threshold, that would not be an issue.

Gavin83

Soozegirl said:

Hi this has probably been covered before, but some advice needed please!  My parents moved back from abroad about 5 years ago and currently live with my sibling.  They do not own a property and have savings of around £80k (no other assets|) which they want to give to me (or my sibling) to fund an annexe/larger house as the living conditions at present are too cramped and they want a bit more space.  They are in their 80s but in good health and are showing no signs of needing care.  Their only income is my Dad's military pension and their state pensions.  If they were to need care in the future, would the authorities be able to insist that we 'gave back' the £80k they put into the house?  I presume as the amount is well below the Inheritance Tax threshold, that would not be an issue.

Potentially. How realistic that is will depend on how far into the future any potential care home placement will be and what care is provided by either you or your sibling before this placement is made. It's worth noting that if the council are funding the placement the requirements are a lot higher so you may well end up with your parents in your home way beyond the point you feel they need care.

However your parents are taking on a lot of risk here. If you or your sibling were to get divorced or go bankrupt they'd potentially lose their money and potentially end up homeless. It's also not unheard of for the child to take the money, buy a bigger house and then kick the parents out (once again making them homeless) although I'm sure you wouldn't do that.

Ultimately there are a lot of positives and negatives to the suggestion and potential care home fees are only a part of this. 

Soozegirl

Thank you - that is sort of what I suspected.  Another question - if we do not accept their offer and simply increase our mortgage to buy a bigger home (which would be possible), could we charge them rent to cover the increased mortgage costs?

justworriedabit

Soozegirl said:

Thank you - that is sort of what I suspected.  Another question - if we do not accept their offer and simply increase our mortgage to buy a bigger home (which would be possible), could we charge them rent to cover the increased mortgage costs?

Hey
You can charge them the full rent, the market rate.
You may have to pay income tax on the rental income if your total income is above the tax free threshold
If you have a mortgage, you will have to let them know as well as any property insurance, etc, etc.
Caution is strongly advised. Come to sell your home where you took rent from your parents, CGT tax may apply but not for a single person rental. However, please read the very clear guide re this in link below as it is very clear and easy to follow. (I may be slightly wrong but the link explains everything)
Take care.
https://www.which.co.uk/money/tax/capital-gains-tax/capital-gains-tax-on-property-avuq96u1500f

Sea_Shell

I suggest you volunteer your sibling!!

Although this will effectively mean waiving bye-bye to "your" share of these funds as future inheritance.  But that's never guaranteed anyway!

It's best to stay out of mixing family and money, for all sorts of reasons.

I say let them crack on between them and stay out of it.

Soozegirl

LOL!  My sibling is the one who currently has them living with her.  It's just that we are moving and are in a position to buy a larger property and we have no kids so it does make more sense them living with us, but, yes, I'm thinking it is all too complicated and they should just buy a motor home instead!

gettingtheresometime

I think Sea_Shell has raised an issue that you may not have thought about - though I appreciate an inheritance is not a right at all.
If your parents were to give £80k to either you or your sibling, then would the other feel aggrieved that, in effect, there was no inheritance? 
The other thing to bare in mind is that whilst they may not need any sort of care at the moment, would you or your sibling  be prepared to give your jobs if they needed care?

Sea_Shell

gettingtheresometime said:

I think Sea_Shell has raised an issue that you may not have thought about - though I appreciate an inheritance is not a right at all.
If your parents were to give £80k to either you or your sibling, then would the other feel aggrieved that, in effect, there was no inheritance? 
The other thing to bare in mind is that whilst they may not need any sort of care at the moment, would you or your sibling  be prepared to give your jobs if they needed care?

Obviously we don't know your parents, but is there a risk of "we've given you £80k, we expect to be looked after".

Will you feel obligated to do things, like give up work/holidays/social life, if they live with you as they age and their needs grow.

Are you and your sibling still planning on living locally to each other?

gwynlas

If you can afford a larger property and both would be happy to have them iving there then this would make sense, Rather than a specific annex it might be simpler to find either a chalet bungalow with ground floor bathroom and two receptions rooms or a  house with sufficient room for you to live apart. You could share household expenses without charging them rent Their savings and remainder of  pensions would then be accessible should they need to pay for care in the future

Sea_Shell

Another thing, are both your partners/ spouses fully on board with all this, especially if it does begin to impact on your lives in the future.

It's a massive step to take.