Parental Property Financial Assistance

[K50 DEL]

Looking for a bit of initial advice here to sense check an idea before getting solicitors etc involved.

My Mum is getting on in years (75) and is currently living in a house that is becoming more unsuitable as time goes on... it will sell for approx £210k

The type of property that she's interested in moving to will cost about £250k

I'm in a position where I can "lend" her the difference, but I need to safeguard it in such a way that, should she need to go into a care home later in life, the government can't take my stake.

There are no other issues with regard to family / inheritance with me doing this, Mum's happy, we already have LPAs in place for both medical and financial.

I'm interested in the thoughts of those who've maybe done this before / touch on this type of area in their professional lives.... am I whistling in the wind, or is this possible?
I had thought of a peppercorn rent / my name on the deeds as a joint owner / setting up a company to buy the house - nothing is off the table at the moment.

Grateful for any / all thoughts

[Eric Mc]

Do you intend to mislead the authorities by intimating that what is really a gift to your mum is supposedly a "loan".

There are rules etc.

I'm only asking this because you have placed the word "lend" in inverted commas - which normally means in this situation that you don't really think that the word is a true description of the transaction.

Also, look up the rules surrounding "gifts with reservation of title".

[TownIdiot]

You could lend her the money and secure it with a charge.

If the worst happens you'll get paid out just like a bank with a mortgage would.

[K50 DEL]

Eric Mc said:

Do you intend to mislead the authorities by intimating that what is really a gift to your mum is supposedly a "loan".

There are rules etc.

I'm only asking this because you have placed the word "lend" in inverted commas - which normally means in this situation that you don't really think that the word is a true description of the transaction.

Also, look up the rules surrounding "gifts with reservation of title".

Thanks for the reply Eric - no, I specifically don't want to mislead anyone, neither Mum nor I are interested in doing anything illegal, but in the same way that tax evasion is illegal but tax avoidance is common sense, I want to understand if there's a way that I can help Mum without losing my money should the worst happen.

It is a loan but the reason I put the word in inverted commas is that traditionally a loan involves a repayment each month and in this case (unless the advice is otherwise) the idea is that repayment would only happen once Mum has passed away,
Again, I'm not worried about the logistics of this part of the plan, we're a straightforward family and the estate when Mum passes will be a 50/50 split between myself and my sister anyway.

I'm not sure if it's relevant but Mum's total estate when she passes will be well below the £325k IHT threshold

Edited by K50 DEL on Friday 21st February 10:10

[AndyAudi]

TownIdiot said:

You could lend her the money and secure it with a charge.

If the worst happens you'll get paid out just like a bank with a mortgage would.

Yes we have done this as a family instead of older members doing equity release to fund their retirement.

Solicitor commented s very sensible approach as much cheaper for everyone, & safeguards against any future issues such as them going into care & the value of the house disappearing including your loan.

We settled on loan repaid out of house proceeds with interest accumulated at base plus 1% in an attempt to protect against inflation - loan was in place for 16years. It took about half an hour for both parties to speak to solicitors (different ones at same firm used).
I remember they initially suggested a higher rate of interest but we didn’t wish to be viewed as profiteering.

Keep everything transparent with other family members, who may be inline for an inheritance of any sort, as obviously loan comes off 1st. & it’s s consideration for inclusion within your own will for how you’d like it dealt with if you die before them.

[Eric Mc]

K50 DEL said:

Thanks for the reply Eric - no, I specifically don't want to mislead anyone, neither Mum nor I are interested in doing anything illegal, but in the same way that tax evasion is illegal but tax avoidance is common sense, I want to understand if there's a way that I can help Mum without losing my money should the worst happen.

It is a loan but the reason I put the word in inverted commas is that traditionally a loan involves a repayment each month and in this case (unless the advice is otherwise) the idea is that repayment would only happen once Mum has passed away,
Again, I'm not worried about the logistics of this part of the plan, we're a straightforward family and the estate when Mum passes will be a 50/50 split between myself and my sister anyway.

I'm not sure if it's relevant but Mum's total estate when she passes will be well below the £325k IHT threshold

Edited by K50 DEL on Friday 21st February 10:10

Thanks for the clarification.

A loan does not have to be repaid in instalments. There is no such requirement in general law or tax law. The only aspect that is required is to be able to prove that a money transfer is a bona fide loan is to have a loan agreemnent in place stating the terms and conditions of the loan and, most importantly, stating how the loaned amount is to be repaid. It doesn't even have to be in writing - although putting it in writing is always advisable.

[alscar]

Whatever you do don’t let your Mum be tempted into buying a “ Winston's surname “ development flat.

[K50 DEL]

Eric Mc said:

K50 DEL said:

Thanks for the reply Eric - no, I specifically don't want to mislead anyone, neither Mum nor I are interested in doing anything illegal, but in the same way that tax evasion is illegal but tax avoidance is common sense, I want to understand if there's a way that I can help Mum without losing my money should the worst happen.

It is a loan but the reason I put the word in inverted commas is that traditionally a loan involves a repayment each month and in this case (unless the advice is otherwise) the idea is that repayment would only happen once Mum has passed away,
Again, I'm not worried about the logistics of this part of the plan, we're a straightforward family and the estate when Mum passes will be a 50/50 split between myself and my sister anyway.

I'm not sure if it's relevant but Mum's total estate when she passes will be well below the £325k IHT threshold

Edited by K50 DEL on Friday 21st February 10:10

Thanks for the clarification.

A loan does not have to be repaid in instalments. There is no such requirement in general law or tax law. The only aspect that is required is to be able to prove that a money transfer is a bona fide loan is to have a loan agreemnent in place stating the terms and conditions of the loan and, most importantly, stating how the loaned amount is to be repaid. It doesn't even have to be in writing - although putting it in writing is always advisable.

Well that sounds positive - so a legal agreement stating that I was loaning my Mum £40k to be repaid from the estate on the sale of the house would be enough that if it did need to be sold to pay for care, I would receive my sum back prior to the rest being consumed by care costs and the local authority wouldn't be able to take the lot?

[AndyTR]

Charge on the property for the % equity with a minimum value of x. Then if the worst should happen and the property sells for substantially more than the purchase price you've protected at least some of the increased value from being taken by the council. In this case, if my sums are correct it would be 16% equity with a £40k minimum charge.

[Muzzer79]

K50 DEL said:

It is a loan but the reason I put the word in inverted commas is that traditionally a loan involves a repayment each month and in this case (unless the advice is otherwise) the idea is that repayment would only happen once Mum has passed away,
Again, I'm not worried about the logistics of this part of the plan, we're a straightforward family and the estate when Mum passes will be a 50/50 split between myself and my sister anyway.

I assume that you also want to wrap your "loan" up not only to avoid the Government potentially taking it for care home fees, but also your sister taking 50% of it when the estate is split between the two of you?

If so, it's worth not only investigating the compliance ways of doing this legally, but also speaking to your sister and making very clear what you're doing (if you haven't already) because loans of this sort made a long time ago can easily be forgotten when it comes to inheritance time and people are expecting everything to be divided down the middle.........

[K50 DEL]

Muzzer79 said:

K50 DEL said:

It is a loan but the reason I put the word in inverted commas is that traditionally a loan involves a repayment each month and in this case (unless the advice is otherwise) the idea is that repayment would only happen once Mum has passed away,
Again, I'm not worried about the logistics of this part of the plan, we're a straightforward family and the estate when Mum passes will be a 50/50 split between myself and my sister anyway.

I assume that you also want to wrap your "loan" up not only to avoid the Government potentially taking it for care home fees, but also your sister taking 50% of it when the estate is split between the two of you?

If so, it's worth not only investigating the compliance ways of doing this legally, but also speaking to your sister and making very clear what you're doing (if you haven't already) because loans of this sort made a long time ago can easily be forgotten when it comes to inheritance time and people are expecting everything to be divided down the middle.........

Indeed, I have no fears on that score, I helped my sister out a couple of years back when she bought her first place, we spoke at length about this last night and she's 100% on board, we're also not the type of family to fall out over things like this anyway. She's also happy to sign something legal as well if needed. we share an LPA for Mum's finances anyway.

[Sheepshanks]

Going back a bit now, we did this for FIL - his three kids (so for his daughter that meant me) took a £75K IO mortage between us to fund the difference for his new house.

Ownership was split 4 ways. He had a decent final salary pension but little ready cash. He gave us £1000 each Christmas which covered the interest. He lived longer than the mortage and we settled it after 10yrs.

When he died, house was sold and solicitor sent us our 25%.

There was never any care / care home issue to deal with - he died at home.

[AndyAudi]

Sorry I meant to look this up was back in 2012
£425+VAT & £60 fees to register it
(That was solicitor response to initial Q - Scotland if it makes a difference)

[Richard-D]

Sheepshanks said:

Going back a bit now, we did this for FIL - his three kids (so for his daughter that meant me) took a £75K IO mortage between us to fund the difference for his new house.

Ownership was split 4 ways. He had a decent final salary pension but little ready cash. He gave us £1000 each Christmas which covered the interest. He lived longer than the mortage and we settled it after 10yrs.

When he died, house was sold and solicitor sent us our 25%.

There was never any care / care home issue to deal with - he died at home.

I know you don't need to hear it but well done for dealing with this in the right way. Same to the OP of this thread. It's nice to hear problems framed in this way.

[Jon39]

alscar said:

Whatever you do don’t let your Mum be tempted into buying a “ Winston's surname “ development flat.

Yes, that is a very relevant point.

Buying any quaintly named retirement village flat, or assisted living flat, often means never seeing your money again.
It can be worse than that. After 'leaving' the property, willingly or in a box, the huge fees continue to be due until an almost impossible sale occurs and if you think well just rent it out, think again.

I learnt all about this when a luxury complex opened in our local area. Out of about 60 flats, sales have occured at a rate of only about 3 per year. At least it probably shows that this scam is being rumbled, but there are still enough mugs around.

[Roger Irrelevant]

Becoming a joint owner with your mum as a tenant in common could be a pretty simple way of dealing with it, so whatever share of the purchase price you stump up you own that share of the house. When the time comes to sell there's no question of your share of the house being used for care home fees because it was never your mum's to start with, it was always yours. Upside is that there's no need for loan agreements and all the legals can be done as part and parcel of the normal conveyancing process. Downside is that you'd only get back your share of the proceeds, so no interest as such, and if house prices go down then you'd be losing money (and if they stay the same you'd be losing in real terms too).

[jonsp]

Roger Irrelevant said:

Becoming a joint owner with your mum as a tenant in common could be a pretty simple way of dealing with it, so whatever share of the purchase price you stump up you own that share of the house. When the time comes to sell there's no question of your share of the house being used for care home fees because it was never your mum's to start with, it was always yours.

But presumably he wants to protect the whole of the property against care fees - not just his share. Without sounding heartless he and his sis want to inherit the whole thing when the time comes.

The answer is to put the whole new property + her other assets into a trust. My old dad did this when he felt he was not long for this world (similar financial situation) when he went into care he had no assets. When he checked out myself and sis split his estate per the terms of his will.

Can't tell you the technicalities of how this worked but a competent solicitor should be able to sort this. Watch the fees - but it will save money vs care.

[AndyAudi]

jonsp said:

ut presumably he wants to protect the whole of the property against care fees - not just his share. Without sounding heartless he and his sis want to inherit the whole thing when the time comes.

Not everyone thinks like that, OP might just be content to protect what’s his already. (some of us do save money to pay for our potential requirements in old age & not all of us plan to go to funded free places….

[K50 DEL]

AndyAudi said:

jonsp said:

ut presumably he wants to protect the whole of the property against care fees - not just his share. Without sounding heartless he and his sis want to inherit the whole thing when the time comes.

Not everyone thinks like that, OP might just be content to protect what’s his already. (some of us do save money to pay for our potential requirements in old age & not all of us plan to go to funded free places….

So Mum, Sister and I had an in depth discussion about this plan yesterday and funnily enough it was Mum who bought up the question of whether care fees could be avoided completely.

From my perspective I prefer not to as I have experience of both "state" and "private" care homes and I know which one I'd want my Mother in if the time came so even if we did protect the entire inheritance Sister and I would end up paying for private care anyway!

As noted, I'm only interested in safeguarding the likely 25% of the property that I will end up paying for.

[jonsp]

AndyAudi said:

Not everyone thinks like that, OP might just be content to protect what’s his already. (some of us do save money to pay for our potential requirements in old age & not all of us plan to go to funded free places….

Fair point.

It does sound heartless to think of the financial implications when your parent(s) check out and an awkward conversation to have.

My dad was clear that he wanted the house he paid for + cash he had to go to me and sis rather than care fees so he instructed his solicitor to accomplish that - which they did. At no small cost, hence my comment to watch for the fees.

If the OP just wants to protect his "share" then surely a loan agreement for £x interest free with repayment of capital after 20 years would fit the bill? Then he's a creditor of the estate for £x.