financial implications of paying rent/sharing living costs with elderly parent

Keep_pedalling

Lover_of_Lycra said:

Keep_pedalling said:

You say she has a very good pension, does her income outstrip her expenditure? If so you could look at her making gifts of her excess income, which would also be good tax planning on her part. So for example her net monthly pension and other income = £2500, her monthly expenditure ( including her share of CT and utility bills) is £1500, she could then gift you £1000 a month from her excess income.

 

Yes, mother gifts money in exchange for being able to live in the annexe just like my employer gifts me money to do work. Saves us both a lot of money in income tax and national insurance.

Gifting out of excess income is a perfectly legitimate form of tax planning. The OPs mother can make those gifts regardless of if she is living in her own home or living rent free in the OPs home. Most people don’t have enough income to do this but in this case it looks a distinct possibility. 

If you have evidence that gifts from excess income are not allowed when the people involved live in the same property please share it with us.

I do think her mother should take some advice from an independent financial adviser on both on tax planning and investing the funds that will result from her house sale. Advice from strangers on the internet is not the most reliable source of information, especially where large sums of money are concerned.

TBagpuss

I'd suggest that you and mum each get some advice. Among other things, it would be sensible to look at mum setting up powers of attorney and perhaps to have a formal arrangements about rent for the annex  - talk to an advisor about whether to set it up as a tenancy, or as a contractual licence, discuss whether she is paying her own utilities separately or whether these are included and build in regular reviews.

I think having something formal will protect you both 0- it might be relevant if she lost capacity and there was a question about whether you could continue to pay yourself, for instance, and would protect from claims of deprivation of assets if things got to a point where that was relevant due to her care needs later on. 


Any income would need to be declared - it may come under the rent a room scheme IF it is low enough and IF the annex is in effect a separate room not a separate annex (in which case it may have to have it's own separate council tax bill, and you can probably separate out some of the utilities as well.)

As above, she can make gifts to you which may be a tax efficient way of transferring assets to you and also a recognition of the extra care you provide. 
 

[Deleted User]

Keep_pedalling said:

Lover_of_Lycra said:

Keep_pedalling said:

You say she has a very good pension, does her income outstrip her expenditure? If so you could look at her making gifts of her excess income, which would also be good tax planning on her part. So for example her net monthly pension and other income = £2500, her monthly expenditure ( including her share of CT and utility bills) is £1500, she could then gift you £1000 a month from her excess income.

 

Yes, mother gifts money in exchange for being able to live in the annexe just like my employer gifts me money to do work. Saves us both a lot of money in income tax and national insurance.

Gifting out of excess income is a perfectly legitimate form of tax planning. The OPs mother can make those gifts regardless of if she is living in her own home or living rent free in the OPs home. Most people don’t have enough income to do this but in this case it looks a distinct possibility. 

If you have evidence that gifts from excess income are not allowed when the people involved live in the same property please share it with us.

I do think her mother should take some advice from an independent financial adviser on both on tax planning and investing the funds that will result from her house sale. Advice from strangers on the internet is not the most reliable source of information, especially where large sums of money are concerned.

It's not a gift though if it is dependent on being allowed to live in the annexe.

maman

I'd agree with getting professional advice but I do think posting online can be valuable. It raises all sorts of questions and 'what ifs' to ask the advisor at the appointment. IMO it's a bit like thinking aloud and helps to plan. 

Keep_pedalling

Lover_of_Lycra said:

Keep_pedalling said:

Lover_of_Lycra said:

Keep_pedalling said:

You say she has a very good pension, does her income outstrip her expenditure? If so you could look at her making gifts of her excess income, which would also be good tax planning on her part. So for example her net monthly pension and other income = £2500, her monthly expenditure ( including her share of CT and utility bills) is £1500, she could then gift you £1000 a month from her excess income.

 

Yes, mother gifts money in exchange for being able to live in the annexe just like my employer gifts me money to do work. Saves us both a lot of money in income tax and national insurance.

Gifting out of excess income is a perfectly legitimate form of tax planning. The OPs mother can make those gifts regardless of if she is living in her own home or living rent free in the OPs home. Most people don’t have enough income to do this but in this case it looks a distinct possibility. 

If you have evidence that gifts from excess income are not allowed when the people involved live in the same property please share it with us.

I do think her mother should take some advice from an independent financial adviser on both on tax planning and investing the funds that will result from her house sale. Advice from strangers on the internet is not the most reliable source of information, especially where large sums of money are concerned.

It's not a gift though if it is dependent on being allowed to live in the annexe.

I don’t think the OP was making anything conditional on her mother being able to live there. If taking steps to reduce future IHT has the additional benefit, of allowing the OP to go part time then that is a happy coincidence, and I can’t see HMRC having a problem with it. 

I do however strongly recommend taking professional advice before doing anything. 

getmore4less

People living as a single households share the costs all the time without counting the pennies and asking HMRC if it is OK.

AskAsk

getmore4less said:

People living as a single households share the costs all the time without counting the pennies and asking HMRC if it is OK.

as they are relations, this would apply unless the rent that the OP is going to charge her mum is very high.  her mum could give her up to £3,000 a year without it being subject to inheritance tax on subsequent death within the 7 years time period.


her mum could actually pay all the bills if she wish as a contribution for being able to stay in the annexe and so on .....

[Deleted User]

getmore4less said:

People living as a single households share the costs all the time without counting the pennies and asking HMRC if it is OK.

Just because people don’t ask HMRC if something is ok doesn’t mean HMRC shares that view. 

Mickey666

Lover_of_Lycra said:

lucypilates said:

Mojisola said:

Isn't it the same as having an adult child still living at home - they pay 'keep' towards all the bills.  It's not counted as income for the parents.

That's how I view it ... but i realise that the tax man may have a different opinion ... just wanted to check

As above, Hector does view it differently. Is this a completely self contained annexe? Does it have it's own CT banding which if it is self contained it probably should.

If it does have a separate CT banding then it will likely benefit from a 100% exemption because it is occupied by a dependent relative (assuming they are over 65).

68ComebackSpecial

Though your mother is desperate for you not to work full time is she aware that your current income is already markedly less than hers? If you reduce your hours will you have sufficient income - not only now but in the future when you will be in retirement?