Joint property purchase?

[tea42]

Recently my wife suddenly became practically immobile caused by spinal fractures through osteoporosis. She cannot walk long distances, visit a shop, tackle the sort of terrain found on a normal country walk or do anything around the house Some days only 100 metres is too far for her. We are hoping that she will recover a bit, but it is evident our life will never be the same again although in my mid 70s my own health and fitness is very good. At the moment I can only leave my wife for a couple of hours or so. Suddenly I have become a full time carer.
Our daughter, who lives in the West Country has often urged us in the past to move nearer her but we have resisted because we live in ‘the promised land’ within easy reach of London and Heathrow with great transport links in a nice village surrounded by wonderful countryside with every facility. Our son lives in North Wales with his family.
Daughter lives in rented accomodation and has a disabled son so in this new situation where I have become my wifes full time carer I have suggested that a good solution is to jointly purchase a large property and we will divide the care of my wife and our grandson. I suggested joint property purchase because if I were to give my daughter half of our capital and died within 7 years HMRC would land her with a 40% tax bill that she wouldn't be able to pay. After our deaths our wills would pass our investment in the property to her as an inheritance as its value is well under the inheritance tax limit attracting no tax. For her half of the property purchase ⅓ would be from her savings and ⅔ a mortgage. I intend to hang onto half our capital which will eventually become our sons inheritance.
What I am wondering is about the legal and financial ramifications of this situation?… Will she be able to get a mortgage in this situation? Are there any tax implications that I am missing? Should this purchase be underpinned by some sort of legal agreement? If either my wife or myself eventually need a paid carer or to go into a care home could the local authority put a charge on our part of the property? Is there anything I haven't thought of that could complicate this situation?
All comments welcome.

[dionaeamuscipula]

Is there anything I haven't thought of that could complicate this situation?
All comments welcome.

I have some friends who bought a large property some years ago with his parents. It is a specialist property with land and the old farmhouse was split so that half was occupied by the parents and half by my friends. Now, my friends needs have changed, not least through illness. Father has died and mother lives on, becoming more and more curmudgeonly with age. Mother refuses to move. The property is unsalable with her on it. They can no longer live there. They cannot sell their property. They are living in unsuitable rented accommodation, essentially waiting for her to die and hoping that they can then come to some arrangement with my friend's sister from whom they are largely estranged.

All was sweetness and light when they all agreed to the arrangement some 15 years ago.

So consider, before you are all committed, how you would handle a "divorce".

DM

[GrandOiseau]

Whilst I think it is a great idea to pool your resources it all sounds a) complicated on many levels and b) full of pitfalls.

Personally I would try to keep things as simple and above board as possible.

Is your daughter sure to stay in the West Country? You don't mention her job or whether she has a partner. Could things in her life change... maybe she forms a relationship, maybe she moves for career reasons or other reasons?

If there was a degree of certainty about her situation I would be thinking along the lines of simply selling your property and buying one purely in your name with your own finance. And then take her and her son in as official lodgers.

[tea42]

My daughters son is totally deaf with no balance organs and attends a Deaf Academy, so she cant live anywhere other than near that. She is married but her son is from an earlier relationship and she shares his care with the lads father, her ex partner. She is a musician and travels worldwide, 30 countries last year. When she is away he looks after the lad. Her husband also working in the music industry is a lovely man. We need a big property with at least 5 bedrooms so that our sons family and her and her husbands friends can visit too. A decent sized workshop/ studio for recording and for our various art glass and woodwork projects. Combining our financial efforts we are hoping to purchase a bigger property with a decent sized garden too. We could of course buy something there and take them in but I would rather she and her husband had a decent sized stake in everything as partners.

[GrandOiseau]

Whilst I am not saying it is wrong to post here I would want to get some professional advice - as in legal advice on the arrangement with your daughter. You may think you would never fall out or have a difference of opinion you wouldn't want something like this to chance. You should both know, agree and understand what happens in various circumstances. I can think of quite a few scenario's just of the top of my head.

Same in regard of the Taxes (though you could try asking the specific question on the Taxes board on here).

Personally I would be doing the rounds - mortgage advisor, lawyer, tax specialist to understand everything about what I was doing. It's a big and bold move, which I totally understand the logic of and could work out really well - as long as it is done right.

Best of luck and let us know how you get on!

[Clitheroekid]

It would help a lot if you could give some approximate figures, for example, the value of your estate at present and its division between your house and other assets; the value of any substantial gifts that you've already made and when they were made; and the approximate price you would be thinking of paying for the jointly owned house.

The figures will enable us to get an overall view, and it may be that you're worrying unnecessarily.

Will she be able to get a mortgage in this situation?

It's unlikely that a mortgage lender would be willing to lend because, as a joint owner, you would also have to be a joint borrower. Generally, lenders are reluctant to lend to people past retirement age unless it's equity release, which this clearly wouldn't be.

[tea42]

Ok. Value of my current property £500k, other assets £200k. New property £600 to £650k. Daughter contributing £100 plus £200k mortgage. I want to leave at least £300k free for our son at some point, far away I hope. I know I must take more specific advice on this but I have observed the fund of excellent wisdom and knowledge on this forum and thought some might suggest an innovative solution.

[Clitheroekid]

Thank you.

Well the good news is that you probably don't have to worry unduly about inheritance tax. Between you and your wife you can leave £650,000 to your children without having to pay any IHT, and without having to leave them your house or any interest in your house.

As I said before, it's unlikely you would be able to buy jointly with your daughter with a mortgage, but if she's putting £300k in anyway this needn't be a problem.

One possibility would be simply to gift her the £300k or so that would be needed to make up the balance. The property would then be in her own name, which should mean that she would have no problem obtaining her £200k mortgage.

This would still leave you with around £400k that you could leave to your son.

The gift wouldn't count as a Potentially Exempt Transfer, as you would be living in the house, which would make it a gift with reservation – i.e. not taken into account for the 7 year rule.

However, the chances are that by the time of the second death you would have spent a fair amount of your capital, so even assuming the tax free figure of £650k remained the same there would probably be no IHT to pay.

The risks are the usual 3D ones in making a gift of a property - death, debt and divorce. If your daughter were to die without making a Will her estate would go to her husband and children, who might want to turf you out. If she became insolvent (unlikely, but theoretically possible) the house would go to pay off her creditors, who would certainly want you out. And if she were to get divorced her husband could claim part of its value, perhaps necessitating a sale.

Talking of which, where does her husband fit into all of this? When you say your daughter would be putting in the £300k are you referring to her and her husband? If so, he would presumably want to be a joint owner, which would make joint ownership with you even more problematical.

There are obviously ways of mitigating these risks, but if you considered them too high you could possibly lend your daughter all or some of the money free of interest, but secured by a second charge over the house, so that you could get your money back if disaster were to occur.

In your Wills you would provide that the charge would be cancelled on the death of you / your wife, whichever was the later, thereby effectively giving her the amount of the loan as her inheritance.

The existence of the second charge might make things more difficult with her mortgage lender, but it wouldn't be insuperable.

Anyway, it's time for my cocoa, but I hope this might give you some food for thought.

[tea42]

Many thanks for that, excellent. It will give her a starting point with a mortgage advisor. I need to think about the gift with reservation.