How complicated is this?

cdbe11

FiL has died and left house equally (worth about 160k) to 4 adult children, eldest aged 69 has lived there all his life and paid "keep", in cash. 

One option floating around (because of his situation and extreme attachment to the house and the fact that he can't afford to buy the others out) is that we (me and wife) gift/buy the house for our 19 yo student son - he owns the house, makes it his non term address and his uncle would become his lodger/rent a roomer. 

I'm a small landlord myself, and the maths just don't add up for me as an investment with him as a tenant so I passed on it at the family conference but apparently (I wont go into it) he is prepared to sign over his quarter in return for a reduced rent over an agreed period to "repay" this.  Again I'm thinking great for my son if he drops dead next week (heavy smoker) but the family is fine with that and even "incentived" the deal by saying they'd be reasonably flexible on any valuation of the property quickly sorted/no selling fees.

I know it's all informal etc and there are some issues around trust etc but its the formalities and legalities I'm looking for guidance on.

Probate just started (fixed price deal from coop which I think may include costs associated with selling one property - but already subject to additional charges as FiL did some strange 4 way trust a few years ago when his wife passed but didn't do probate - so kids already own a quarter of a half).

The "plan" would be that we either directly or otherwise (gift to son) buy out 2 siblings with cash (which we have), gift son our share and uncle gifts him his share.  We're in fine health, early 50's.

Just looking for a overview - pitfalls, tax implications, order to do it and rough costs/worth adding it onto the coop job?

Thanks 






 

EssexHebridean

The biggest question here is does your 19 year old really want to share his home with an elderly heavy smoker? Remember from your son’s point of view he will end up with significantly increased stamp duty liabilities should he decide in a few years that actually his own pad sans Uncle is going to be a better place to bring girlfriends home to… 

I will leave others to give their views on the co-op as a legal services provider other than to say that I hope you’re not in any hurry to get things concluded…

FlorayG

Is your son actually going to live there as his main home outside of term time and be responsible for all the utility bills and council tax? I'm just thinking if he doesn't then you're on dodgy lodger/tenant ground outside of the financial complications

400ixl

What if the uncle suddenly needs long term care? The council could go after him for deprivation of assets if he has gifted his share of the inheritance to your son.

Also agree, does your son want to use his first home buyer status (and ability to save in a LISA) on this and have to live with an elderly relative?

[Deleted User]

It sounds like a great deal for your siblings.
They get cash now, while you/your son are lumbered with a property that has a sitting tenant in it.
Other than the issues already mentioned, who will be responsible for council tax, bills, property maintenance and so on, for the foreseeable future?
What young person is going to want to share a home with an aging heavy smoker?
I don't think that it's yours or your son's responsibility to look after a 69yr old and certainly wouldn't want to put my kids in a similar situation. It's a start to adulthood that they don't need (imo).

FlorayG

[Deleted User] said:

They get cash now, while you/your son are lumbered with a property that has a sitting tenant in it.

oo, there's a point - if the older brother is living there now then once he sells/gifts his share he surely becomes a tenant in law? Or may already be one? In which case your son can't just move in with him. I think the legalities of the current inhabitant is what you need to sort out first of all. He probably needs to move out to make the whole idea legal then come back as a lodger

lincroft1710

Take a leaf out of the "Grange Hill Anti Drug Campaign" Just Say "NO"! 

cdbe11

These are some of my concerns. It would be my son's official address but being a young student the reality is that he' wouldn't spend any significant time there - but there are no laws to say that he has to. He would have the council tax and bills in his name.

He only smokes outside - just mentioned due to the health implications.

Deprivation of assets - I've researched separately and he could pass his share of the inheritance to my son via a deed of variation of the will  - so in effect he would never inherit the money to give away, and I understand that if there's no perceived need for nursing care at the time of any gift (which there wouldn't be) then it's allowed.

I don't know which piece of legislation would turn him from a lodger to a tenant? He used to pay his keep to his mother and when she passed away he paid it to his father, in future he would pay it to his nephew - he would never be the sole occupier of the house. It would be a lifetime/as long as he needed it offer with no question of "getting him out" - he's my wife's brother.

Lisa - yes, and we were considering starting one for our son so that's a "loss" of say 1k a year for 10 years to factor in.

Second home stamp duty - yes, a gamble that he'll want to buy before this property is available to sell (and I struggle to see how he can live in home one as owner with lodger and live in home two without incurring a cgt liability somewhere - presumably he'd have to "move out", formally convert the lodger to a tenant, have the house valued, and a liability would commence) - something to be factored in to the costings.

So, potentially a load of hassle?

Obviously there's more - our share of the inheritance (40k) plus the 80k we'd have to gift him to buy out the other two siblings means we'd be down around 5k a year on interest (the money would otherwise be held in cash ISAs).

So are there any positives?

I think the most we could expect to receive is £200/week (index linked) including bills, so 10,400 less council tax (1,200 - with exempt student and 25% discount), say 2,500 for bills - (water, gas, electric, insurance and boiler cover) plus 1,000.a year for contingency/maintenance (I'd do the maintenance myself and know that's realistic).

So about 5,500 annual surplus to cover lost interest, and we'd not be funding a Lisa for 10 years (40k).

So, unless my maths are way out, for probably not very much, he would (at some point in his life), own an unencumbered house, and in the meantime a tax free income (via rent a room/his unused personal allowance).

This (in a convoluted way) aligns with our desire to financially help out our children while we are in a position to do so, ie we'd probably have given him 100k or so at some time in the next 10 years anyway.

I don't know whether this make the whole scheme sound any more positive? It's something the family is keen to work for the benefit of my brother in law - a simple man really not for the modern world - paper driving licence, 60k life savings in his current account earning 0% interest (at least no longer under the mattress), literally his life is the only home he's ever known, work, his cigarettes and two pints in the pub on Sunday afternoon - that's it. 

cr1mson

That sounds like a disaster waiting to happen especially as if son doesn't live there physically even if nominates as non-term address uncle would not be a lodger but a tenant with all the implications in terms of responsbilities etc and inability to use rent a room.

I know you say uncle is a heavy smoker but he could easy live for a long time and the house would become a burden rather than a blessing to your son. Or may need to kick uncle out!

Surely if FIL was desparate for him to remain he would have granted a life interest to avoid all this.

Debbie9009

I suspect your son won’t ever really live there, so I think the BIL is really going to be a tenant, not a lodger, so does your son want to be a landlord, especially for a relative.

You state maintenance of £1000 a year because you would carry out the maintenance, what happens if BIL needs to make adaptations as he gets older, such as a stairlift, or maybe a downstairs bathroom, because he can no longer manage stairs, but doesn’t want to go into a care home, who will pay for things like this.

Just because he is a heavy smoker, don’t be thinking that it will be only for a few years, I’ve known many heavy smokers who have lived very long lives.

I can understand wanting to look after the BIL but this shouldn’t be down to just you and your son, is it possible for all the siblings to wait for their share so BIL can remain there.

As someone has already commented this is a great deal for the siblings being bought out, but not so great for your son, who will be loosing first time buyer incentives, a LISA, most likely need to pay extra stamp duty, and then CGT when the house is finally sold, with not much in exchange. 

ian1246

I absolutely would not be doing this.

If the elderly relative has nowhere to go, it sucks but ultimately you as a family need to decide between you whether to sell the property & make him homeless in order to receive your inheritance or collectively become landlords & recieve rent from him for your shares.

Those are the only 2 viable paths from what I can tell - and both come with huge pitfalls, financiall/ morally.

The third option is you all gift the elderly relative your shares & accept the loss.

Very unfortunate circumstances for the elderly relative!