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My parents will be moving into our home and paying

Resolved Question:

My parents will be moving into our home and paying for the alterations that are required, approx £45K
They would also like to use money from the sale of there home to pay down my mortgage so that we can reduce are work hours to look after them, approx £55K.
Where do we stand tax wise and what would be our responsibility if they had to go into a care home in the future.
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi
Thanks for your question - I am Sam and I am on eof the Uk tax experts.
Tax wise there is no implication on them or you for this arrangement. But there will be an Inheritance tax consideration on the gift they make to pay off your mortgage should they not survive more than 7 years form the date of making this payment (IF their total estate is worth more than £325,000 for each of them)
Then we have the alteration of your property and the fact they will fund this - you do not specify what - an annex or self contained studio - will their be a separate entrance ? Will this be deemed to be a property in its own right - or just the main house extended up, or along - please advise further.
And yes this will affect the position should they need to apply for assistance with care fees later down the line as this could be treated as a disposal of capital (deprivation of capital) and mean that you/your parents have to fund the entire costs of any fees that arise.
But how this affects it also depends on
1) Whether they will have their own self contained property with tehse alterations
2) Are they in good health now or is their a like hood that care will be needed as their are health issues now
Thanks
Sam
Customer: replied 1 year ago.

Thank you Sam, (1) the alterations will involve our dinning room becoming their lounge /dinner with an extension from this room down the side of the property to incorporate the garage as a bedroom with ensuite and a kitchen in the extension. It will have its own entrance but will be designed to be incorporated back into the main house in the future, it will not be a separate property in its own right. It will still have internal access into the main house.

They are in relatively good health my father being 82 and mother 78. But 7 years is quite some time. Would they both have to survive for the seven years or just one of them.

Their total estate even with their property is unlikely to exceed much beyond £150,000 between them.

The reason for them moving in with me is, that they presently live in a mid terrace with stairs that cause issues, the purchase of a bungalow is outside of their ability in the local area. Moving in with us would hopefully remove the need in the longer term for care from the council.

As additional info,

(2) When my parents bought their council house i gave them £4,000 pounds towards the cost with my father paying a small mortgage for the rest. I seem to remember that at the start my name was on the paperwork but was removed before completion as i was in the process of buying my own property

I do not have any paperwork to conform this, could this have a bearing on this issue if i could possibly find some paperwork to show that i originally had an interest in their house.

Thank you for the quick response to my question.

with thanks

Keith

Expert:  Sam replied 1 year ago.
Hi Keith
Thanks for your response
Working backwards your assistance with the purchase of their home will have no bearing, unless you had official paperwork drawn up at the time. endorsed legally by a solicitor.
Now onto the property alterations, I am sure you have checked with the council (planning permission) as to whether this will be treated as its own property (and give rise to council tax)
But your intention may be that you bring the property back as one after the need arises, but I am afraid this will affect the ability to apply for assistance should care fees arise as this WILL be treated as deprivation of capital - for the purpose of paying off your mortgage and I assume you will try and leave the annex in your names (rather than also your parents names?)
But I can advise that with regard to the Inheritance tax, as each of their shares of the estate is LESS than £325,000 then this venture will have NO bearing on any Inheritance tax position and therefore the 7 year lapsed period also is non relevant, So that is one less thing to concern yourself over.
But as they are moving in with you due to the difficulty with the stairs - they are needed to be created with a slightly easier position and I fear that any care home fees will have to be borne by you, so maybe rather than them pay off the mortgage they retain those funds, so the council will accept that they covered the costs of the alterations (to provide them with suitable and independent living accommodation but that they either pay you rent for said accommodation or accept that full care home fees will have to be covered by remaining funds from the sale of their own property.
Its about showing that the house and the stairs were an issue so the move was for health purposes, but only spending whats needed to manage that requirement and retain the rest of the monies - as a reasonable action
And then rents paid to you - to cover excess heating/lighting/remaining mortgage interest (as you will all be under one household) provided through a rent book provided and a set up standing order from their bank to yours so again the council can see it was NOT deprivation of capital.
You will then need to consider whether you have rental income (less expenses) to declare to HMRC which should be a NIL position - but you are then making sure your parents get the best of all words and re sen just to live and not "give" all their money away.
Whether the suggestion is feasible (due to any benefits they might receive) is between you and them to discuss.
I hope that helps
Thanks
Sam
Sam, Accountant
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