House prices in the South West are among the highest in the country relative to earnings, As a consequence, many of the younger generation are struggling to get on the property ladder and equally, with people living ever longer, many children are supporting their parents or other family members in their later years.
Most readers will be familiar with the idea of a ‘granny annexe’. Some properties come with suitable accommodation: but challenges can arise if living space needs to be built; if it is the intention for children to move into the parent’s home as carers; or if finances are to be combined to fund a larger property that can support multi-generational living.
Those contemplating this may find that financing such a project is currently attractive. Changes to the pension rules allowing easier access to savings may be tempting for some. In addition, some parents are buying a property together with their children and planning for the child to take sole ownership when the parent has died. Some mortgage lenders are positively encouraging such action, allowing anyone under the age of 70 to apply for a mortgage lasting 35 years.
On the face of it this seems like a clever plan, but according to Stones Solicitors, a Devon based practice, it is fraught with difficulties and will need comprehensive legal support.
If you sell your home and give the money to your children so they can build a granny annexe or make adjustments to existing accommodation for you to live in, you may fall foul of income tax rules linked to pre-owned assets.
This could also apply if parents and children sell their respective homes and buy a property together where the contribution towards the purchase price does not reflect occupation.
The ‘gift with reservation of benefit’ rules should also be considered if children may move into a parent’s property. If the parent gives the property to the child but continues to live there the rules may bite. It is possible to give up to half of the property to a child who moves into the property provided the household bills are shared appropriately. In both these scenarios, there could be unanticipated inheritance tax implications if you die within seven years which, in a worst case scenario, could mean the property has to be sold.
How the property is owned will need to be decided, as will whether or not it passes automatically on death or within a will. If it is the latter, then it is vital that the will is kept updated. Parents also need to consider other siblings and how they achieve fairness among all their offspring.
Thoughts also need to be given about what happens if the property needs to be sold before the parent or parents die. An example of when this might happen is if there is a family falling-out. Trying to sell the property when feelings are running high may well be problematic – if a written agreement has been reached at the start of the process about what to in such a situation it will make life much easier for everyone involved.
Another example is if the child marries and then divorces – what happens to the property then when a third party, the divorcing in-law, is making a claim on it? One solution may be to put in place some sort of trust to protect the asset.
As we live for longer, we need to plan for what happens when we are older and less capable of running our own affairs.
Powers of attorney granted to children and/or other trusted individuals ensure that, if a parent loses capacity, their affairs are carried out in good order. It is also important if it is decided to sell the house that has been bought jointly – if no powers of attorney are in place then the property could not be sold without an expensive application to the Court of Protection.
Finally, at some point an ageing parent may need additional care, including being placed in a care home. Care fees can be crippling and there may be a risk that the property would need to be sold to cover these costs – at which point the child could find themselves back where they started.
It is only natural that parents should want to help their children as much as they can, but care must be taken to consider the personalities involved, the financial implications and what each individual is hoping to get out of the arrangement.
The key is to find the method that suits you all best, and to employ the best professional advice you can to ensure you do not fall into any hidden traps. If you want to know more contact firstname.lastname@example.org or call 01392 666777