Buying mums house and her staying with us

Sunflower_diamond

Hello, looking for some thoughts / opinions on our situation. Will try to keep to the facts.

Dad died 31/10 last year. Very unexpected, aged 68.

Left everything to mum including house (valued at £400k no mortgage), healthy trust fund pension which is hers tax free and a couple of ISAs and the money in the joint accounts. She’s in a very fortunate financial position.

Brother (37) still lives at home. He is autistic but high functioning, drives, has a wee part time job in Lidl.

Mum has decided house is too big for the 2 of them and wants to sell and buy something smaller. House is a large bungalow with in effect a ‘granny annex’ extension, built approx 20years ago with my brother in mind but he never moved into it. 

I suggested to my mum that it would be the best time to set my brother up independently. He is capable of this and does not need a carer, he’s just never had to do it and wouldn’t be in a financial position to do it himself. She agreed and decided to sell the house, buy him something and get something else for herself.

My husband and I want to buy the house. We have 3 kids and have always shown interest in it. My older brother (41), married, 1 child, does not want it. We suggest we can buy the house and my mum can live with us in the granny annex. She is delighted at this suggestion and says it’s the way she envisaged the future being.

She wants to support all of us and gift us financially to help everyone out. She wants to gift
- Brother (37 at home) £200k to buy his first property and get him set up - this is enough locally for a 2bed home which would do him for life.
- Me a £200k ‘discount’ for buying the house, so we would pay £200k for a £400k house.
- Brother (41) the £200k that we would pay her for the house for him to either pay off mortgage, invest, move, whatever they wish.

We have a house to sell, worth around £260k, with £180k outstanding on the mortgage, fixed rate until April 2026.

Initially we spoke to our mortgage advisor who advised some possible issues
- selling house family member to family member 
- allowing mum to reside in the house
She has spoken to our current mortgage provider (HSBC) who are happy to lend in this scenario and can port our mortgage with us using any equity to pay the 20k difference.

Mums solicitor who is dealing with dads estate is trying to make use of dads property inheritance tax allowance and has suggested by deed of variation altering dads will to leave his half of the house to me so I would then part own the house with my mum 50/50.

This is where I need advice 🤯  does this make my situation more complicated? How can I get a mortgage for a property I already part own? Would I be liable for extra tax as I ‘own’ a second property? Is there a benefit in doing the deed of variation other than to make use of the inheritance tax allowance?

I have been reading a lot about concessionary purchases, and complications with mum residing with us. We have agreed she will contribute to bills so she won’t be living with us rent free. 

Am I missing anything? I thought we were doing a nice thing keeping the house in the family and allowing mum to continue to live in her own home. I didn’t expect it to be so difficult! Apologise for the mass of information, I really appreciate anyone who has taken the time to read this and provide any thoughts / advice.
x

Sunflower_diamond

Should add we are in Scotland if that makes any difference x

Keep_pedalling

Assuming your parents were married the solicitor is giving very bad advice with regard to the deed of variation and using his RBRB. As he left everything to your mother his whole estate will be covered by spousal exemption and both his NRB and RNRB leaving her estate with a total exemption of £1M.

If would be far better for her to simply make those gifts herself rather than a DoV which will use up his NRB and RNRB.

For example if her total assets with the inheritance were £1.5M and she makes 3 gifts of £200k, that £600k would be covered by the 7 year rule, so if she survived another 7 years her estate would pay no IHT.

If on the other hand she did a DOV for £600k it would use up all of his NRB and RNRB and would leave a £40k IHT bill on the remaining £100k. When she dies her estate will only have £500k in exemptions, so would be facing an IHT bill of £160k on the additional £400k

Although DOV are useful in some circumstances, they never are if someone is passing on an inheritance from a spouse and I would expect a solicitor to know that.

Sunflower_diamond

Thanks for your feedback, I really appreciate it. The solicitor is only suggesting to do the DOV on the house, not the cash gifts to my brothers. I think she is trying to protect the property element of dad’s estate. Forgive me if I don’t explain this properly…

Dads £325k plus the £175k property too with would go to mum so she’d have £1m IHT exemption. If she sells the house she will lose the property element dropping it to £650k.

If they do the DOV the solicitor is suggesting that the property element of dads IHT would remain so she’d have £825k. I might have misunderstood though…

She has enough in ISAs / joint accounts that she can give my younger brother his cash. Then when we sell and give her the £200k for the house she will give that to my brother. This will leave her pension trust fund (currently around 700k) for her to live off. She is 67 x

Keep_pedalling

Neither RNRB would be lost in this situation because of the downsizing rule. A DoV is not required to protect it. 

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Does your mother have any income other than from the pension fund and state pension? Will she have any savings left outside that pension? My main concern would be what happens if this does not work out or if you pre decease her, go bankrupt or get divorced. Will she still be able to sort something out for herself either purchasing or renting? She won’t be able to take a large amount in one hit from the pension without paying a large amount of tax

Sunflower_diamond

Hello, thanks for this. She has my dad’s pension in the trust fund, which is hers tax free. She can withdraw from that, any amount tax free. She is going to draw a regular income from it. She worked in the bank so she has her own private pension from that, plus her state pension x

silvercar

“ She has spoken to our current mortgage provider (HSBC) who are happy to lend in this scenario and can port our mortgage with us using any equity to pay the 20k difference.”

It all looks fine, providing the above is true, I don’t understand why HSBC would be prepared to discuss your mortgage with your mother, so I’d want to verify this for myself (in your position). 

GDB2222

What security does your mum have that you will let her live rent free in the annexe for the rest of her life?  At 67, you are looking at 20 years. A lot can change in that time. 

Bookworm105

Keep_pedalling said:

For example if her total assets with the inheritance were £1.5M and she makes 3 gifts of £200k, that £600k would be covered by the 7 year rule, so if she survived another 7 years her estate would pay no IHT.

I agree with you re the DoV, but the fact mother would be living in the house she once owned (whether 50% or 100% after inheritance is irrelevant) would make her £200k "discount" a Gift With Reservation (of benefit). Therefore the 6 year rule would not apply to that GWR and the 200k would remain inside her own estate upon her death or until she moves out. 

The only way mother could avoid the GWR would be to treat the 200k as a POAT (previously owned asset tax) and to avoid that tax she would need to pay the full market rent every month for the rest of her life (or until she moves out) on the granny annex. deciding what is a full market rent for a granny annex occupied by a family member would probably best be left to a professional valuer willing, if necessary, to argue their figure in front of an HMRC tax tribunal.

so OP is either going to get a monthly income (which he would have pay tax on) or is going to lose a bit of "his" eventual inheritance if mother's estate is subject to IHT when she finally dies. Either option is probably better than the DoV as you yourself have identified.

GDB2222

Is it possible to split the granexe off the house, so each has a separate title? Mum can keep the granexe and sell the OP the rest of the house. Both parts would be hard to sell separately, though. 

Albermarle

You should consider what would happen if your Mum needed expensive care later in life/care home.
The local authority would take a dim view if they had to pay for her care, as she had given away most of her assets.
It is called deliberate deprivation of assets.
They could insist the family pays, and care homes can cost up to £80Kpa.