Question re purchase of property by elderly father on our behalf

ntfzjf250498

Hi, I have a question re the tax (particularly inheritance tax) implications of my elderly father buying a flat as a buy-to-let property on behalf of myself and my sister (who will be shared beneficiaries in his will).

Our mum died a few years ago, having put our parents' home in trust, with myself and my sister trustees. Effectively, the trust gave us ownership of half of the house, with the other half going to my dad, along with a stipulation in her will that he remain in the house until he either no longer wished to live there or upon his death.

Last year, now having quite significant mobility issues, my dad insisted we sell the house, and he moved in permanently with my sister.

So half the house proceeds have gone into the trust account set up by my sister and I, and the other half are in my dad's accounts.

But now he has insisted that, rather than sit doing next to nothing in his bank, he wishes use the large part of his money from the house proceeds to purchase - for cash - a rental property as a buy-to-let that he can leave to myself and my sister in his will.

I just wondered if anyone had any insight into the possible implications of this, tax-wise (particularly re inheritance tax)? Would it be sensible for him to create a trust - as my mum did - and place the buy-to-let property in that? 

Any help is appreciated!

SDLT_Geek

ntfzjf250498 said:

Hi, I have a question re the tax (particularly inheritance tax) implications of my elderly father buying a flat as a buy-to-let property on behalf of myself and my sister (who will be shared beneficiaries in his will).

Our mum died a few years ago, having put our parents' home in trust, with myself and my sister trustees. Effectively, the trust gave us ownership of half of the house, with the other half going to my dad, along with a stipulation in her will that he remain in the house until he either no longer wished to live there or upon his death.

Last year, now having quite significant mobility issues, my dad insisted we sell the house, and he moved in permanently with my sister.

So half the house proceeds have gone into the trust account set up by my sister and I, and the other half are in my dad's accounts.

But now he has insisted that, rather than sit doing next to nothing in his bank, he wishes use the large part of his money from the house proceeds to purchase - for cash - a rental property as a buy-to-let that he can leave to myself and my sister in his will.

I just wondered if anyone had any insight into the possible implications of this, tax-wise (particularly re inheritance tax)? Would it be sensible for him to create a trust - as my mum did - and place the buy-to-let property in that? 

Any help is appreciated!

It will be worth checking the stamp duty implications (stamp duty land tax, if buying in England).  If buying in England then the SDLT due will depend on the nature of the trust.  It sounds as if the trust gives your father the right to the income.  If so, then for the purposes of working out whether the 3% surcharge applies, one would look to his circumstances.  If he has no other property interests, then that could mean the 3% extra not applying, even though the property is bought to let out.

p00hsticks

Not to do with tax, but a couple of things to consider in case you are not already aware or it hasn't been pointed out to you elsewhere...

How likely is you father to need to pay for care going forward ? He can't just give his money away (which I think would be the effect of placing the property in trust for you ) and then expect the state to fund any future care needs he may have - that's 'deprivation of benefits' and the local authority will treat the case as if he still had the money available to him.

What other assets does you father have ? A house is an illiquid investment and I would suggest that he would;nt want all his savings tied up in it. 

What previous experience does your father, you or your sister have in managing BTL properties ? You say your father has mobility problems and is now living with your sister. Do any of you really need the additional hassle and responsibility of being a landlord ? There are plenty of threads on this board regarding the topic - if you've no previous experience it's worth reading up on them (and perhaps showing them to your father). Don't assume that you can simply pay a letting agent a management fee and they'll just take care of everything for you.

RAS

Start by reading this Tenancies in Eng/Wales: Guides for landlords and tenants — MoneySavingExpert Forum although it is now a bit out of date.

There are costs involved in setting a property to the standard needed for letting, serious penalties for failing to get the right documentation organised and issued to the tenant. You need a decent emergency fund to cover a replacement heating system etc, even if the tenant is not paying rent. And if you want to sell, it can take well over a year to get the property back even if you've got all the paperwork correct.

All of this eats into the margins, which is why a lot of landlords are getting out of the market.

Keep_pedalling

Inheritance tax is only a concern if his estate (which will include the life interest trust) If northwards of £1M as he has 2 x NRB and 2 x Residential NRB to use. I would question whether a BTL is the way to go considering the obligations he would be taking on in becoming a landlord.

Putting his assets in trust would undoubtedly be treated as deleverage’s deprivation of assets if he ever needs to pay for care so should be avoided. 

ntfzjf250498

Many thanks to all.
Re stamp duty, we're aware of the potential liability there, although my father has nothing else at all, property portfolio-wise. We may therefore be able to avoid it, but we'd investigate further. Certainly, we know that if it was us buying a B2L property, we'd be looking at 8%.
The question re his care is also a good one. At present, the plan is very much for him to remain living with my sister. His current circumstances are such that he qualifies for attendance (rather than care) allowance. He has ongoing kidney issues (began dialysis around a year ago), but is otherwise very well, physically, and has no cognitive issues. I'd like to say this will be the case moving forward - and my sister has promised him he will never go into a home - but we all know that circumstances can take a turn.
That said, the money myself and my sister inherited from our mother is such that we could, in theory, sustain long-term residential care for him for around at least three years without having to discuss eating into the money - his money - that he is proposing to spend on a B2L property.
My business partner has a sideline operation as a B2L landlord, so I have some insight into the amount of bureaucracy (and additional investment) required to sustain that line of business these days. But we have identified a property which we believe, on balance, still promises both a decent monthly return as well as long-term investment potential.
Again, thanks to all. We shall certainly now look into some of the issues you raise in more detail, particularly re the potential pitfalls of placing more assets into trust.

Keep_pedalling

Has your father put lasting powers of attorney in place? If not that should be a priority especially for finance.