Buying to let for Elderly parents

jimmyx_2

Hi, I'm thinking of buying a flat for my elderly parents and they will rent from me to cover the mortgage. They need to move to be closer to me and can't afford to buy in the area. They are nearly 80.
There current home is approx £200k and selling this will give them some needed cash. Does anyone know the situation for Inheritance tax etc and other tax issues that may come up?

thanks

17Dave

In simple terms they will each have an allowance for Inheritance Tax (IHT) of £300,000.

Specialist advice should be sought as this is a complex area.

Do they have wills? Another area that IHT planning can be achieved.

simpywimpy

If you buy the house in your name and rent it to them (presuming you already have your own home) you would be liable for capital gains tax if and when you decide to sell it.

I dont think your parents would have a problem with inheritance tax as £200k is way below the limit. There is no tax payable between partners so if the first parent dies and leaves everything to the remaining one there is nothing to pay AND the remaining parent gets double the allowance by using their deceased partners allowance giving them over £600,000.

If in the meantime they give this money to you as a gift, then they still wouldnt come under the tax as the gift is still under the limit, regardless of whether they then live for the 7 years (the rule that says no tax payable after 7 yrs from date of gift)

I am in a similar position as my dad bought the house I live in with a view to giving it back to me when I was financially stable but now we are in the position that he cant give it back without leaving him liable for 40% capital gains on the increase in value. This is a massive £40,000 bill. He is therefore leaving it to me in his will thereby not being liable for any capital gains.

Having just lost my own mother, we have been delving into the matter of inheritance tax recently ourselves so the info I have given is up to date.

jimmyx_2

Thanks for the info, very useful.

clutton_2

legally speaking, most lenders specifically prohibit any close member of the mortgage-holders family from becoming tenants, but, i am sure many families ignore it - but there may be insurance issues also if you are effectively defrauding your lender. .......

Gorgeous_George

I've never heard of lenders barring relatives from being tenants but I would not doubt clutton on the subject. Not an issue in this case I suspect, but housing benefit may have an issue if their claimants were renting from relatives.

CGT only becomes an issue if there is a capital gain and even then there are generous allowances to be 'exploited'.

IHT threshholds are huge and only the very wealthy will need to pay. Estates less than £1M should have little, if any, liability. Could be worth seeking further advice if the estate is likely to be over £600K but seek this for free form here (backed up by research at the library or on official dot gov websites).

Sounds like a good plan to me providing you understand the risks of BTL. Perfect tenants can ease the problem. What happens if prices crash (say 50%?) and your perfect tenants move on to the great BTL in the sky? Can you handle the loss? Would the estate be left solely to you or have you got siblings/cats' home to share it with?

GG

speedtwin

If the tenant are going to claim Housing benifit the council dont like it if the Landlord is related

dmg24

speedtwin wrote: »

If the tenant are going to claim Housing benifit the council dont like it if the Landlord is related

Their savings will bar them from claiming HB.

However, if they did not have savings, it is possible to claim HB in this situation where there is evidence of a commercial agreement.