Buying My Fathers House

[Budlet]

If I was to buy my fathers house for £100,000 and rent it back to him what are the implications of:
a) him gifting 50% of this money to his grandchildren, and
b) care home costs if he needs to move into one in the future.
Thanks in advance for your answers

[boxtops]

I believe that it is not looked upon well if someone sells their residence just to avoid paying care home fees - but I'm not the expert on this one.

[woofgang]

I think if he is paying you a commercial rent and is currently in good health, so no expectation that he will need res. care, then you should be ok. The hook is if it looks like its being done to avoid care home fees

[ubasses]

If he needs Care, they can go back many years and go after the money if they consider that he disposed of it to avoid paying care fees. (If I remember correctly the term of 20 years was mentioned in the booklet they gave me when Mum went in).
No problem with you buying the house at market rate, the rent you charge must also be the market rate, which you will pay tax on if it takes you over the tax threshold with your other income.
The problem arises if he gives any of the money away to his grandchildren.

[Maydup]

You might be best to research online about capital funds care home fees as its changing.

Try Age UK for example

http://www.ageuk.org.uk/home-and-care/care-homes/paying-for-permanent-residential-care/

[Gizmonster]

.... any gifts of money that are made, come under the 7 year rule:

Have a look at:
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm
and :
http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm
and:
https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property

As for the care home costs, I'm not too sure 'cos you're buying the house, he's not simply signing it over. However, eyebrows may be raised due to him giving half of the money away.

My mother signed the house over to me and my sister recently. If, however, she needs to go into care home in the future, they may accuse her of gifting the house to us to avoid paying care home fees. However, she's re-marrying (again) at the end of this year and her husband to be is moving in and has no collateral of any kind .... all she is doing is protecting her home, in case things go belly up, so he can't get half of her house if he turned out to be a gold digger. Her arguement will be that she wasn't trying to avoid care home fees, she did it to protect her house ... she did this when she was approx 60 years of age .....

[woofgang]

heres chapter and verse from the government
http://www.nidirect.gov.uk/your-home-your-assets-and-your-care-home-fees.

if your father is currently in good health and, as has been said, you charge him a commercial rent and pay whatever tax is due, I think that social services would be hard put to prove that it had been done to avoid paying care home fees. If your father gives money away, then he has to survive for 7 years after the gift to avoid payment of inheritance tax....Oh and you would need to buy the house at a commercial valuation and pay stamp duty and so on.

[Gizmonster]

I'm not sure that the renting of the property at the going rate, applies here - he's buying the house, it's not being gifted. If your father was to give you his house, then you have to rent it at the going rate, etc and pay any taxes due on the rent, etc.
.... but the house is being bought outright, so I would think you can do what you want with it and that would include let him live there rent-free. The main issue, would be what happens to the proceeds of the sale, ie the £100k.

[ubasses]

Gizmonster is right about the market rent I got carried away typing there. That only applies if he gives you the house

[woofgang]

Sorry but I don't agree. If you buy the house from him, he gives cash away and lives there rent free, while its quite within the law, a county council might still take the view that because he has divested himself of an asset and received a benefit for it (rent free accommodation), he could be said to have done it to avoid paying care home fees....the problem is that there are no clear rules about this and different councils will adjudge differently
here's the age concern factsheet
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true

the key bit seems to be when the asset is disposed of. if the disposer is in good physical and mental health at the time and a need for care cannot reasonably be said to be foreseen then you are in the clear, otherwise not!!
the more general age concern link
http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

[ubasses]

But if he has sold the house for market value he has not deprived himself of an asset he has swapped bricks and mortar for cash, If he gives some of that cash to the grandchildren he is then depriving himself of his assets.

[Budlet]

Thank you so much to everyone for your answers. I am always impressed and hugely grateful to everyone on this forum who give their time and expertise. Cheers.

[Gizmonster]

I agree with you woofgang - the problem arises when the cash is disposed of.
The selling of the house at the market rate is fine and I believe that as the house has been bought outright, the new owner can do with it as they seem fit and if that includes letting someone live there rent-free, that's their choice.
The seller has 100k in cash now and this is what the council would be interested in ... if you were to give this away, then they might accuse you of trying to avoid care home fees.

[helplessone]

hi Budlet I'm 70 and I live in a house that I bought, gave it to my sister in exchange for me having a life rent. I will not pay any rent till the day I die and all repairs are down to my sister as she owns the house. When I kick the bucket and the house is sold the money raised (less expenses) will be used as gifts. If you buy your fathers house, and at the time of buying he in no way looks as if he would need to be accommodated in a care home then you are not cheating anyone. the money he gets is his and if he wants to put it on the 4.30 at Goodwood that is his privilege. If it was the case they (meaning the council or social security) could penalise someone for squandering their savings going back 20 years then we all would be guilty. It all depends on your fathers health how far they go back and that is usually 6 months but that can be extended within reason. If your father has some progressive disease and you know that his condition will continue to get worse leading to the inevitable care home then you might be accused of trying to avoid care home fees. If your father's health is in reasonable shape for his age then who is to predict what might happen in the future. As for the house you have bought again it is now yours and no one can touch it or take it off you. hope that helps. Research Liferent online

[woofgang]

This thing about fee avoidance IMO is a bit unfair. Even if you are in excellent health, it might be argued that you are divesting yourself "just in case".
Its like getting a wish if you see a white horse and don't think of its tail, the only way that you have a foolproof defence is if you can honestly say that you didn't know about the rule....

[factor-fiction]

It's not clear to me whether the figure of £100,000 (or possibly even £50000 if the 50% cashback to your children is seen as a 'wheeze') is anything like the market value. If the market value is significantly more than this then again it could be seen as deliberate disposal of assets, as well as avoidance of stamp duty possibly.

Someone mentioned IHT- that's unlikely to be relevant unless the total value of the estate exceeds around £325K (possibly £650K if he was previously married).

When you eventually come to sell the house there may be a Capital Gains Tax issue if it isn't your only property.

There may of course never be an issue of care home fees. Hopefully he wil remain fairly healthy and spend the rest of his life where he is now. If he does need care I don't think financing it himself is an when it's on health reasons. If he does have to pay his own fees, you may find you're tempted to sell the house yourself to help him fund his care- e.g. for an upgrade- if you want the best care for him.

I think it's a complex area and it may be worth paying for some professional advice where they can take account of all circumstances.

[joko]

how would anyone know he has given half to the grandkids?

he could just he spent it, couldnt he?

or do they inspect old bank statements? what if you dont have them?

[woofgang]

joko, spending it yourself if it is considered to be unreasonable or extravagant can still be adjudged as attempting to avoid fees.