Buying mum's house

Albermarle

Regarding IHT.
When she dies her estate will have a total nil rate band of £650K.

Here estate will consist of any savings or other assets and the house she has sold to you .(This is because as she will live their rent free, it is not considered a 'proper gift' as she will still benefit from the property). If all this together is worth less than £650K , then there will be no IHT to pay.

Due to all the potential negatives with the current plan ( outlined in previous posts) , it might be simpler for you to just purchase the flat for your brother ?

theartfullodger

Albermarle said:

Regarding IHT.
When she dies her estate will have a total nil rate band of £650K.

Here estate will consist of any savings or other assets and the house she has sold to you .(This is because as she will live their rent free, it is not considered a 'proper gift' as she will still benefit from the property). If all this together is worth less than £650K , then there will be no IHT to pay.

Due to all the potential negatives with the current plan ( outlined in previous posts) , it might be simpler for you to just purchase the flat for your brother ?

Unless rates change for IHT before she goes.  Considering state of economy entirely possible.

elsien

Jemma01 said:

If the house is undervalued you could also be accused of asset deprivation if your mum needs future care. This whole situation sounds like a ploy against the poor mum who just wants to help her disabled child, just so you could save money by playing dangerous games with the system. 

Only if at the time there was a foreseeable  need for care, and also that the primary intention of giving the money away was to avoid paying care home fees. avoidance of care home phase is not the motivator here, as far as can be judged from the OP.

And that is a very unkind take on the OP. it’s not unusual for a parent to want to help their child out, and the OP is trying to check all the pros and cons rather than steaming on in there so I disagree with your rather judgemental take on this. 

NorthYorkie

The objective behind all this seems to be to enable the brother to have a flat of his own. To do this
ThorOdinson will take on a mortgage to buy his mother's house and she will use the proceeds to buy the flat for the brother. At first sight (and on the limited information available) this seems unnecessarily complicated. Perhaps there might be a couple of more simpler options;

1. We don't know anything about the brother other than he has 'special needs', which phrase can cover any number of conditions. Could he not apply for a mortgage himself to buy his flat or is there a condition which impacts on his capacity to do so. If it is a question of financial resources, could not ThorOdinson act as guarantor? If that were possible then the flat would be owned by the brother and would not prejudice Thor's SDLT first-time buyer status on any future house purchase.

2. If Thor were to purchase the flat him/herself (as suggested by Albermarle) and declare it to be held on trust for the brother to occupy rent-free for his life time, the beneficial ownership would be regarded for SDLT purposes as being held by the brother (see SDLTM09815 - SDLT - higher rates for additional dwellings: interests treated as owned by an individual, trusts, children [including children subject to the Mental Health Acts] - HMRC internal manual - GOV.UK ). Therefore, again, Thor's first-time buyer status would not be prejudiced. He would, I believe, be making gifts to his brother equal to the mounts of the mortgage repayments.

Grumpy_chap

NorthYorkie said:

The objective behind all this seems to be to enable the brother to have a flat of his own. To do this
ThorOdinson will take on a mortgage to buy his mother's house and she will use the proceeds to buy the flat for the brother. At first sight (and on the limited information available) this seems unnecessarily complicated. Perhaps there might be a couple of more simpler options;

1. We don't know anything about the brother other than he has 'special needs', which phrase can cover any number of conditions. Could he not apply for a mortgage himself to buy his flat or is there a condition which impacts on his capacity to do so. If it is a question of financial resources, could not ThorOdinson act as guarantor? If that were possible then the flat would be owned by the brother and would not prejudice Thor's SDLT first-time buyer status on any future house purchase.

2. If Thor were to purchase the flat him/herself (as suggested by Albermarle) and declare it to be held on trust for the brother to occupy rent-free for his life time, the beneficial ownership would be regarded for SDLT purposes as being held by the brother (see SDLTM09815 - SDLT - higher rates for additional dwellings: interests treated as owned by an individual, trusts, children [including children subject to the Mental Health Acts] - HMRC internal manual - GOV.UK ). Therefore, again, Thor's first-time buyer status would not be prejudiced. He would, I believe, be making gifts to his brother equal to the mounts of the mortgage repayments.

Has that been copied and pasted from an AI service?

The issue around SDLT for properties treated as owned in trust are very complex and quite probably require far more detail and consideration than can be sensibly covered in a forum such as this.  There are intricate detailed technicalities in the rules that can catch anyone out.  Appropriate professional advice will be required.

ThorOdinson

Albermarle said:

Due to all the potential negatives with the current plan ( outlined in previous posts) , it might be simpler for you to just purchase the flat for your brother ?

That's an interesting idea. Brother could buy the flat when he inherits a share of mum's house. Then nobody loses out, as long as the value of the flat increases by at least as much as the mortgage interest up to that point.

The issue I see though are that I would own the flat but not live there. Could charge some rent, but only up to what he would be able to get as benefits, and I know that they will be suspicious if renting from a family member, unlikely to be understanding of the situation.

As I'd be a landlord I'd need insurance, contracts, and be responsible for maintenance. Not sure I want to get into that.

NorthYorkie

Grumpy_chap said:

Has that been copied and pasted from an AI service?

The issue around SDLT for properties treated as owned in trust are very complex and quite probably require far more detail and consideration than can be sensibly covered in a forum such as this.  There are intricate detailed technicalities in the rules that can catch anyone out.  Appropriate professional advice will be required.

No, I don't use or even read stuff produced by a robot. ( recall someone saying "why should I bother to read what someone else couldn't be bothered to write?". And Yes the OP would need to speak to a professionally qualified adviser and give him/her far more details than we have available

Grumpy_chap

ThorOdinson said:

Albermarle said:

Due to all the potential negatives with the current plan ( outlined in previous posts) , it might be simpler for you to just purchase the flat for your brother ?

That's an interesting idea. Brother could buy the flat when he inherits a share of mum's house. Then nobody loses out, as long as the value of the flat increases by at least as much as the mortgage interest up to that point.

The issue I see though are that I would own the flat but not live there. Could charge some rent, but only up to what he would be able to get as benefits, and I know that they will be suspicious if renting from a family member, unlikely to be understanding of the situation.

As I'd be a landlord I'd need insurance, contracts, and be responsible for maintenance. Not sure I want to get into that.

If you would need a mortgage to buy the flat for your brother, you may find that lenders are reluctant to lend for a BTL intended to be let to a family member.  You would need 25% deposit regardless.

You would incur CGT when your brother buys you out.

For any number of reasons, your brother may never inherit sufficient from your Mum's Estate to buy you out.  The value of your Mum's Estate when she passes may end up being far less than it is now - particularly if she has funded care in the mean time.  The priority for your Mum must be to use her own funds for her own benefit.

Even if your brother does inherit enough to buy the flat, he may choose not to.

Brie

If the OP buys a flat for the brother but moves in with mother there may be further problems. 

If brother is on benefits how will they be effected by living in a flat owned by a relative.  If there is no rent being paid that would effect housing benefit - assuming that could even continue due to the flat being owned by a relative.  And it's already been noted that there's the issue of maintenance on the flat - how is that to be paid for?

If OP buys the flat for brother and moves in with mother what happens to OP if/when mother needs care financed by the local authority?  The LA could insist on the house being sold to fund the care which would make the OP homeless.  

As an alternative to resolve some of the issues mentioned already.....perhaps mother can sell the house to the OP at market value.  The excess not needed to buy brother's flat would be held by mother as savings that she would then pay to OP as "rent" to cover her share of the cost of living there (council tax, utilities etc).  The flat would be in mother's & brother's name as tenants in common so that when she dies her share is inherited by OP to be fair and also to ensure that brother cannot be made homeless if/when mother needs LA assistance with care.  

I would suggest that both OP & mother need separate solicitors to ensure their different interests are covered.

Happy to have people poke holes in this - it is a tricky situation.

ThorOdinson

It sounds like it may be impossible. The local council will have to find him somewhere to live and cover the full cost of it.