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  • FIRST POST
    • shinytop
    • By shinytop 13th Jan 19, 3:28 PM
    • 119Posts
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    shinytop
    Another helping family with house purchase question
    • #1
    • 13th Jan 19, 3:28 PM
    Another helping family with house purchase question 13th Jan 19 at 3:28 PM
    For any acquantaince (no really, it isn't me!)

    50s couple with 2 kids, mortgage paid off. Daughter owns a house, son doesn't. Couple are currently renting, money in the bank waiting for house purchase. Their plan is to gift money to son and for him to buy property with the cash as a FTB . They then live in it rent free until they're both dead, at which time son will give 50% to daughter and eveyone is happy. They say it saves stamp duty and kids would be inheriting the house anyway. I think it's a lot of trouble to save a few grand. I pointed out that son would also lose his FTB status but apart from suggesting son could kick them out and run off with all the money or give nothing to his sister when they pop off (which they won't listen to) I couldn't come up with anything else. Given the amount involved I doubt IHT will come into it. Are there any fatal flaws in this plan?
Page 1
    • xylophone
    • By xylophone 13th Jan 19, 3:33 PM
    • 27,997 Posts
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    xylophone
    • #2
    • 13th Jan 19, 3:33 PM
    • #2
    • 13th Jan 19, 3:33 PM
    Gift with reservation of benefit?


    https://uk.practicallaw.thomsonreuters.com/9-382-5631?transitionType=Default&contextData=(sc.Defaul t)&firstPage=true&comp=pluk&bhcp=1

    POAT?

    https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm44001
    • trailingspouse
    • By trailingspouse 13th Jan 19, 3:36 PM
    • 3,344 Posts
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    trailingspouse
    • #3
    • 13th Jan 19, 3:36 PM
    • #3
    • 13th Jan 19, 3:36 PM
    They could easily be around for another 30 years - does the son really want to be tied down like this for that length of time? What if the house they buy is no longer appropriate for their needs?

    And all the usual deprivation of assets stuff.

    And how about just letting the son stand on his own two feet? And having become mortgage free, why do they want to complicate things?
    Others will be along in a moment with more reasons why this isn't a good idea.
    • xylophone
    • By xylophone 13th Jan 19, 4:03 PM
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    xylophone
    • #4
    • 13th Jan 19, 4:03 PM
    • #4
    • 13th Jan 19, 4:03 PM
    Other thoughts - will the son be living in the house?

    If not, it will not be his PPR and on sale there will be a CGT liability?

    There is no mention of whether the son is married/intends marriage - supposing there were a divorce?

    What happens if the son predeceases his parents ( a sad thought but an acquaintance has just died suddenly and unexpectedly at the age of 42) - is he expected to leave them the house in his will?
    • shinytop
    • By shinytop 13th Jan 19, 6:46 PM
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    shinytop
    • #5
    • 13th Jan 19, 6:46 PM
    • #5
    • 13th Jan 19, 6:46 PM
    Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.


    What happens if the son predeceases his parents ( a sad thought but an acquaintance has just died suddenly and unexpectedly at the age of 42) - is he expected to leave them the house in his will?
    yup good point and yes he would be expected to leave it to them.
    • AnotherJoe
    • By AnotherJoe 13th Jan 19, 6:51 PM
    • 12,056 Posts
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    AnotherJoe
    • #6
    • 13th Jan 19, 6:51 PM
    • #6
    • 13th Jan 19, 6:51 PM
    Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.


    yup good point and yes he would be expected to leave it to them.
    Originally posted by shinytop

    I dont see the point of this then, at all. And worse, there's so many things that can go wrong, and so much other tax that will be paid by someone at some point, that I more than agree with you, its not just a lot of hassle its far more hassle than its worth and almost certainl;y it will cost more in the long run.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Pixie5740
    • By Pixie5740 13th Jan 19, 6:52 PM
    • 13,605 Posts
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    Pixie5740
    • #7
    • 13th Jan 19, 6:52 PM
    • #7
    • 13th Jan 19, 6:52 PM
    Thanks for the replies. The intention isn't to help son; he does not and will not live in property. I don't think son is tied down; he would just own the house his parents live in. He is not married but I suppose a pre-nup would be wise if he ever did.


    yup good point and yes he would be expected to leave it to them.
    Originally posted by shinytop
    How is this rouse going to benefit the parents at all. The son won't be purchasing the property to live in as his main residence so he cannot claim the SDLT relief for FTB. He won't be able to use a HTB ISA or LISA bonus towards the purchase of his first home.

    If the parents are trying to arrange the situation to maximise the taxes paid to HMRC they are going the right way about it.
    • Cakeguts
    • By Cakeguts 13th Jan 19, 7:39 PM
    • 5,444 Posts
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    Cakeguts
    • #8
    • 13th Jan 19, 7:39 PM
    • #8
    • 13th Jan 19, 7:39 PM
    It sounds as if they think it will get round deprivation of assets.
    • shinytop
    • By shinytop 13th Jan 19, 7:59 PM
    • 119 Posts
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    shinytop
    • #9
    • 13th Jan 19, 7:59 PM
    • #9
    • 13th Jan 19, 7:59 PM
    The son won't be purchasing the property to live in as his main residence so he cannot claim the SDLT relief for FTB.
    Ah right I hadn't realsied that was the rule. Neither do they, since the reason they stated they were doing it was to save SDLT.


    It sounds as if they think it will get round deprivation of assets.
    Hmm, yes that is very likely to be the case thinking about it and knowing them. I wonder how would this be viewed legally- someone living in a house that they had gifted to their child X years ago and had lived in rent free then needing expensive residential care?
    Last edited by shinytop; 13-01-2019 at 8:01 PM.
    • xylophone
    • By xylophone 13th Jan 19, 10:25 PM
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    xylophone
    someone living in a house that they had gifted to their child X years ago and had lived in rent free then needing expensive residential care?
    Well, they couldn't say that the reason for the gift was to give their son a home.

    It would appear from what you have said that the value of the family home just sold would be within the family home allowance

    https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

    so a PET as reason for the gift would not wash.

    They would not have paid rent so could not claim to have wanted to help him out financially.

    What reason is left other than planning to avoid care fees?
    • Keep pedalling
    • By Keep pedalling 13th Jan 19, 11:57 PM
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    Keep pedalling
    The whole idea is bonkers tell them not to be so stupid.
    • enthusiasticsaver
    • By enthusiasticsaver 14th Jan 19, 12:14 AM
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    enthusiasticsaver
    When the son eventually buys his own house to live in he will have to pay double stamp duty as a second home as he will already own the property his parents live in.

    The parents are giving up all their capital and control of it so unless they have large pensions later on or other high savings they will have to accept council care homes should they need residential care in old age providing they don't get accused of deprivation of assets.

    Son or daughter in law if son is married now or in future decide they want to liquidate and throw parents out. Son could refuse to give 50% to daughter or he could predecease them all and the property goes to his wife or children effectively making parents homeless.

    It sounds like a daft idea to me.
    Early retired in December 2017

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    • tlc678910
    • By tlc678910 14th Jan 19, 9:23 AM
    • 780 Posts
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    tlc678910
    Hi,
    As already mentioned the son will have to pay an additional 3% stamp duty when he buys his own home and will lose all first time buyer perks/ won't be able to use "help to buy".

    If their son went bancrupt then parents would lose their home as it is their sons asset and not theirs.

    In a marriage/divorce it wouldn't be possible for the son to protect his parents house so in a longer marriage / children born etc the parents house would certainly be considered in the division of marital assets.

    As already stated if the son died the parents position is uncertain. If he was married would his wife then own the house. Is the son legally able to leave such a large asset to his parents if he has a wife and children dependant on him? If his wife owned the property this could affect her entitlement to benefits so that she has to sell the house in order to live on the money.

    As the son owns the property but does not live in it he will owe capital gains tax on any increase in value from when he takes ownership to when he sells. When he divides the house with his sister if he pays his own capital gains tax he could get significantly less than her.

    As the parents continue to live in the property without paying a market rent it is still included in their estate for inheritance tax and as they have given it away as a scheme to avoid care fees (they are not helping their son as he doesn't live there and they don't pay him rent) then the local authority could try to recover care fees under deprivation if assets.

    In short lots of down sides and the upsides don't work as they would wish them to.

    As a further thought if the parents do need care in old age are they happy to have no funds to influence who cares for them and no choice but to accept the cheapest care package that they are allocated. It might be that in old age they could choose to release some money from the house for repairs/maintenance or for private carers to pop in daily allowing them to stay at home in comfort longer - wouldn't they want that choice? Will their son have the money to maintain their house - or the time to care for them?

    Some scenarios might sound far fetched - e.g," he won't marry and divorce causing his parents to lose the house" but if you read this board regularly these things do happen. In my real life I know of a case where a man lost his parents and grandparents house to funding addiction and where a man lost the parents house in a divorce and they had to move to a mobile home.

    Tlc
    • shinytop
    • By shinytop 14th Jan 19, 9:49 AM
    • 119 Posts
    • 70 Thanks
    shinytop
    All, thanks for the replies, they confirm my initial thoughts that this is a very bad idea. They won't listen to anything to do with their kids doing anything wrong. The SDLT argument will probably work because it looks like they would collectively be paying more of it using their cunning plan. And they won't have thought about CGT either.

    Fortunately they said they were going to discuss this with their Financial Advisor so hopefully s/he will put them right.
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