Considerations for mum selling property to move closer/in with me?

[foolishdecisions]

Hi all, I have a situation that has arisen that I'd like to understand the legal implications of but I don't fully know where to start. Apologies if this is the wrong kind of board to post this on.

My mum is 70 years old and thankfully independent and in good health. My dad passed away in 2004 and I lived with her until about 2010/2011 when I started a family of my own. I live approx 20 miles away, 40-50 mins drive, and although I try and see her whenever I can it's not possible all the time due to work, life and and my own family. Recently there's been a few (relatively minor when seen from the outside) issues for her with neighbours and house maintenance but they have taken a toll on her from a stress perspective, and as a result she's been thinking about her long term future. My maternal aunt and uncle have been speaking to her and they approached me about looking to move her closer to me. My younger brother and sister left home before me and have their own lives and are much further away and have both advised that they cannot help her at the current time.

It looks like the current plan that is forming is for my mum to sell up entirely as the house is too large and difficult for her to maintain, and rent somewhere in my locality for a short period. Then to look at purchasing a place together with me in the near future. Unfortunately moving into mine is not an option as I only have a 2 bedroom flat and 4 children of my own.

Conservatively I think her current property would be worth around £250k. My current property is probably worth approximately the same but I have an outstanding mortgage of approx. £130k.

Prices in my area are high (circa £500K it seems for a 3 bed house with some extensibility potential) and although I need to upsize at some point in the future as the children get older, at the current time we are comfortable where we are in terms of schools, transport and community so I don't want to move out of the area as it's unfair on my family. My own plan was to try and pay down my mortgage as soon as possible, and then explore other options once that's been achieved but this was definitely long term (at least 10 years).

I can see there's potentially a few (legal) areas of concern for me here:
1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts?
2) When it comes to buying another property, would a typical lender accept a joint mortgage with an elderly person at 70 years of age? I don't know mum's exact income, but she has private pensions from herself and also from my dad as well as the state pension, so I think she should be on at least £15k per annum.
3) Is it better for me to apply for the mortgage in my name only, but with an increased deposit from her capital and the sale of my property. Presumably I'd declare her capital to the lender and I recall that there was a beneficial interest form that she would need to be mentioned on. (No beneficial interests for the current flat). Are there any inheritance implications of this?
4) Does my mum gifting any of this capital at this stage cause issues further down the line in terms of social care if it's needed as she becomes older? Is there a timescale for that? (I don't mean care homes as I am adamant that I wouldn't want that for her, and when my dad was terminally ill I was the primary carer at home and would want to do the same for my mum as well.)

There is obviously an impact on my family that I need to consider but this is more personal and one I need to discuss with my partner. If we can get the right kind of property that has the potential for extension/granny annexe/separate kitchen and bathroom then most of the issues should be alleviated, at least from my perspective.

There's a lot of things to think about, but I just wanted to pen some of it down and also to see if there's anything I'm missing from the bigger picture with your advice.

Thank you in advance for your help.

[JohnB]

I would focus on getting agreement with your siblings that they are happy with the big capital flows that are about to occur. While it would be easiest for you to get all your Mum's house proceeds to buy the big house in your name and allow her to live rent-free, how would their interests be protected. If you are putting yourself out, and later providing care, should you all be getting equal parts of the estate, or should you get an allowance.

How well do your partner and children get on with her. Clearly you do, as you lived at home so long, but they need to too if she's in a granny flat rather than a property nearby.

Is her estate likely to need the house allowance to avoid IHT? If so I'd read up on the rules very carefully.

[pochisoldi]

I would kick the inheritance tax can down the road by buying the property jointly or buying the property in a single name as sole trustee.
In both cases a deed of trust would need to be drawn up to represent the relative proportions of ownership.

Put another way, the property can be registered in the name of "Daughter" (in her capacity as trustee) with a suitable restriction against the title.
Daughter then beneficially owns X% of the property in her individual capacity, and Mother has beneficial ownership of the remaining percentage.

Come the day, the distribution of Mother's share in the property will depend on the contents of her will.
This might remove the feeling that you are getting your inheritance early/before your siblings.

My gut feeling is that having Mother sell, gift to daughter and then mother lives in house 100% owned by daughter is fraught with problems:
Family:
- How will the other siblings feel about the arrangement?
- How will the other siblings feel about the arrangement X years down the line?
Tax:
- Might be caught by the "pre-owned assets" rules.

Disclaimer - this is off the top of my head, and could be riddled with errors.
If you proceed with this course of action, you must get a "proper" conveyancer to handle the purchase, not a "conveyancing factory" - the factories can't handle things when they go off script. ("proper" = local, contactable)

You should also make sure that you find out the mortgage lender's stance on such an arrangement before you pay any application or survey fees.
The CML handbook at https://www.cml.org.uk/lenders-handbook/ can be useful, but it's targetted at conveyancers, not joe public.
I would suggest (1) identifying how you want to own the property (discuss with your conveyancer), (2) Identifying suitable lenders with a mortgage broker (3) go back to the conveyancer and ask them to look at the lenders handbook and see if your "way of owning the property" is compatible with the lenders requirements.
This will increase your legal fees, but will save possible lost fees and stress when it comes to the mortgage.

PochiSoldi

[PinkDalek]

... 1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts? ...

You need to provide more information than you have so far, to establish if IHT considerations are relevant.

All we know is there's a property worth about £250,000. If that is the sum total of her assets plus up to £75,000 in other net assets, subject to looking at any prior large gifts within the last seven years and matters such as the possible availability of other reliefs (transfer of any unused nil rate band from former spouse etc), then IHT may not be an issue at all.

Are you aware, for instance, of the existing IHT nil rate band of £325,000?

[hiriskpaul]

1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts?

To answer this part, from what you have said, it is unlikely there will be any inheritance tax issues. Anything given to you by anyone becomes what is known as a Potentially Exempt Transfer (PET). If the person who gives you the money/asset survives for 7 years, the gift can be ignored for inheritance tax purposes. If your mother dies within 7 years, the gift will have to be considered for inheritance tax, but even then it is unlikely there will be a problem. To start with the first £325,000 of her estate (including non-exempt gifts over the previous 7 years) would not be subject to tax. In addition, as the proceeds are coming from your mother's house her estate will also be entitled to something called the Residence Nil Rate Band (RNRB), currently £150,000. So that gives you £475,000 before you have to worry about inheritance tax. In addition to that, provide everything passed to your mother when your father died, you would also be able to use your father's allowances, so that is another £475,000.

Make sure you keep records of both your father's estate when he died and all the gifts from your mother - dates, amounts and recipients.

One other thing to consider is what would happen if you died before your mother. Once you/your wider family agree on what you want to happen, update your wills to make sure it does.

I would echo what PinkDalek says though. You have not provided a full picture and there are all sorts of ifs and buts when it comes to inheritance tax.

[genou]

1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts?

You need serious advice here. The contribution to you purchasing seems nailed on to be caught by the Pre Owned Assets Tax, if your mother funds you to buy rather than taking an interest in the house. I'm sure a structure can be found, but you do need to take care.

[hiriskpaul]

1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts?

You need serious advice here. The contribution to you purchasing seems nailed on to be caught by the Pre Owned Assets Tax, if your mother funds you to buy rather than taking an interest in the house. I'm sure a structure can be found, but you do need to take care.

Does it matter though if her mother's estate fits in the NRB?

[PinkDalek]

You need serious advice here. The contribution to you purchasing seems nailed on to be caught by the Pre Owned Assets Tax, if your mother funds you to buy rather than taking an interest in the house. I'm sure a structure can be found, but you do need to take care.

Does it matter though if her mother's estate fits in the NRB?

Not answering for genou but both genou and pochisoldi mention pre owned assets and I forgot about that aspect completely.

I think the answer might be that it does matter. The POAT is charged as Income Tax and would not apply if IHT is due. In this case we don’t yet know.

[hiriskpaul]

You need serious advice here. The contribution to you purchasing seems nailed on to be caught by the Pre Owned Assets Tax, if your mother funds you to buy rather than taking an interest in the house. I'm sure a structure can be found, but you do need to take care.

Does it matter though if her mother's estate fits in the NRB?

Not answering for genou but both genou and pochisoldi mention pre owned assets and I forgot about that aspect completely.

I think the answer might be that it does matter. The POAT is charged as Income Tax and would not apply if IHT is due. In this case we don’t yet know.

The mother could elect to have her gift to be kept within her estate for IHT purposes and that escapes the POA rules. Whether that would financially be the best thing to do is hard to say without more information, but I suspect would be a good route to explore as the mothers estate looks as though it would comfortably fit in the NRB, especially if her husband's NRB is also still available.

[Lootman]

1) After the initial sale of her property, what are the tax implications of my mum gifting some of that capital to her children? My mum's intention is to give away some of her capital to my brother and sister and the rest to me for purchasing the bigger property. What happens if she passes on shortly after in terms of Inheritance Tax on those amounts?

The contribution to you purchasing seems nailed on to be caught by the Pre Owned Assets Tax, if your mother funds you to buy rather than taking an interest in the house. I'm sure a structure can be found, but you do need to take care.

I'm no expert on POAT but it was my understanding that for POAT to apply, the mother would have to continue to derive benefit somehow from this new bigger house that the son was going to buy anyway. If instead she rents a home as was suggested, presumably paying that rent out of her pension income, then I do not see how any benefit derives.

The mother is of course free to gift the cash proceeds from her home sale to her children. And if she lives another seven years then there is no IHT problem (assuming the estate is otherwise large enough to incur IHT).

So the only problem I see is if the mother were to move into this new bigger house and benefit from it. Then GWR (gifts-with-reservation) or POAT might be inferred, and the 7 year clock would not start ticking. But that situation is easy to avoid.

Now, whether some later care home costs would be in danger of not being council-funded because of the deliberate deprivation of assets rule is another matter. But otherwise it seems to me that the GWR and POAT issues are avoided by keeping everything at arm's length. So I'd avoid messy property deals like buying in joint names or using intra-family loans, and just make these unconditional cash gifts. What the three children then do with that cash is immaterial, as long as it doesn't benefit the mother.

[Lanark]

I need to upsize at some point in the future

I think this is a key point, if you have 4 children, Im guessing the oldest must be at least 5, so in 10 years from now they will be 15.

The thing you want to avoid is getting into some complex arrangement with your mother that makes it more difficult to scale up when you need to. In your situation I would be seriously thinking about a relocation to a more affordable area, even if it means a pay cut. It is much easier to move children when they are young than when they are teenagers with exams around the corner.

[sg31]

Others are dealing with the legal implications can I just say that even more importantly you should look at the practical and emotional implications.

You may become sole carer for an elderly and infirm parent at the same time as you are trying to raise a growing family. Your other siblings live away from you and mum is in your house. They may not be able to provide any help.

Can you cope with someone who needs constant care, maybe suffering from dementia. 24hours a day, 365 days a year, no prospect of a holiday and no end in sight. You would be responsible for getting them to all hospital, doctors and dentists appointments. You wouldn't be able to work.

My sister and I tried, we worked together, she had grown children, I had none. I'm not too proud to say it broke us, I'm just about recovered 4 years later. If you wanted a full time team of carers you would need 6 people to cover 3 shifts, holidays, sickness etc and you would be trying to do it on your own.

I'm sorry for going off on a tangent but this needs you to go into it with your eyes wide open having talked to people who have done it.

It may not happen, mum might have a quick and easy end to life but you need to be aware of the possibility she won't.

Best of luck whatever you decide.

[LadyGagarin]

With regards to funding any future care fees, your local council will take into account how long ago your mum gifted any money to you. Also how foreseeable her care needs were at that point. Unfortunately the fact you may be sharing her home won't necessarily mean you are exempt from having to sell it. Although if children are also resident, they might take that into account - but I'd hesitate to state that as something to rely on. Have you contacted your nearest AgeUK? They are sometimes able to advise on these scenarios in more detail. As an alternative, have you explored the possibility of sheltered housing near you? Or is that not an option?

[Howard]

foolishdecisions

Can I approach this from your Mother's angle as this might be helpful? I'm roughly the same age as her.

People in her (fairly modest) financial situation are often cautioned that terrible tax issues might occur if they consider the type of action you describe. However, as others have written above, assuming she doesn't have any other major assets I don't think any major tax issues are looming if she sells her house for 250k and gives it away.

If she consulted me as a friend, explained what you are suggesting, and she wanted to move in with you and she trusted you to look after her interests, I'd advise her to sell her house and give you virtually all the 250k towards the larger house you describe. Perhaps with a gift of, say, 10k each to your siblings and keeping, say 50k in a savings account for a rainy day.

I'd also suggests she has a chat with you all before taking any action and explains that she is doing this because you are taking the risk of caring for her in her older age.

In this way, there are no tax issues, she has been straight with her children and, in the end you will earn your extra financial benefits hopefully over the next 10 or 20 years.

This approach has the advantage of driving out any family issues in advance, giving your siblings the chance to comment, and instead of leaving the money when she dies (maybe with associated problems) she will have the pleasure of seeing it well-invested in her family and living next to grandchildren will hopefully keep her young in heart.

One final bit of advice I'd give her is that (from your comments above) your mortgage seems pretty high to me, I would encourage her to suggest that you aren't too ambitious in purchasing a new home.

Hope some of these comments are helpful. It is so worthwhile having a relaxed face to face family discussion before taking this type of action if you can arrange it.

Good luck with whatever you decide. And regards to your Mum

Howard