To think this is a good financial investment

[Wife2b]

I’m not the most informed with this sort of thing.

Grandmother wishes to move closer to us as currently lives 3 hours away. Renting a 3 bedroom council property where she is.

My Dad is contemplating buying a 1 bed flat with cash local to us for her to live in on the premise that she will continue to claim housing benefit and pay rent to him (this money will go towards rebuilding his savings).

Am I right in thinking this is a good financial decision? He’ll have the value of the property which will hopefully increase over time plus savings accrued from the rent (subsidised by housing benefit minus tax).

I’m conscious that he has £72k in the bank, intends to buy the property for £70k assuming offer is accepted. Grandmother will pay for stamp duty (as second property of Dad’s) and the legal fees/survey. Don’t want him to be making a poor decision but it sounds a good plan to me. Are there pitfalls we might be missing?

Thanks

Will the rent be formalised into an AST?
Service charges on the flat?

CGT when he sells the flat, but CGT is due on most investments anyway (excl ISAs etc). On homes CGT is 28%.

One option might be to forego the rent so she lives in it gratuitously. Depending on her age this may work. No CGT on sale if formalised as a trust now. Plus the property is rebased on grandma's death if held in trust, ie past taxable gains are wiped out. There will be no IHT as the value of the flat and other assets of grandma's will be within her IHT exemption of £325k (which may be £650k) plus the main residence band.

You would need to work out the post-tax rent during her remaining years, then compare that to the future CGT / IHT savings of structuring the flat as a 'trust asset'.

Grandma can save money up to statutory threshold for housing benefit and / or spend the excess in inventive ways.

You can't claim hb when renting from a family member. For this reason.

She would need to check she can still claim housing benefit when renting from a close relative. It could well be seen by the council as a contrived tenancy. If he had had the property for some time and previously rented out to others that would be different but not in the scenario you are describing.

This feels like it’s probably bait

I'm not sure benefit fraud is ever a good financial investment.

It's a shocking idea. In a council property your Grandma has affordable rent, a tenancy for life and maintainance paid for.

A three bed flat will be popular so the better thing for her to to see if she can do a swap and get a one bed council flat in the area she is keen to move to. Given you say the properties your dad is considering are at around £70k then I assume it is not an area of high housing demand?

Sorry how is it benefit fraud, I’m confused?

She receives housing benefit to rent her current 3 bedroom house which is obviously no use to her. To move areas, she has been informed by the council that she would have to take property like for like so she’d have to take another 3 bedroom property here which she doesn’t need. She’s old and needs to downsize, preferably near those who can take care of her. My Dad would be her legitimate landlord.

I was under the impression that housing benefit can be paid to family members providing they do not live with you which he would not as my Dad has his own home.

Look up contrived tenancy.

We have looked into this, but at her age where she is getting older and less mobile she needs to be near those who can take care of her. We are all 3 hours away. She currently receives around £300 for housing benefit in her council property. They won’t allow her to move areas and downsize, she’d have to take a 3 bedroom property here which 1) there won’t be any and 2) what a waste when it could be used for a family in need.

We aren’t trying to fiddle the system, we are trying to find a legitimate way to help her. Yes my Dad could just charge her rent that would come solely from her pension but she doesn’t receive much as it is and certainly not enough to cover rent at market value (my Dad will charge the minimum he can to recoup costs).

I will thank you. Like I say, we aren’t trying to do anything dodgy, just support an elderly relative the best we can (in a way that we thought was legal??).

It could well be seen by the council as a contrived tenancy

Which it would be.

Thanks for this, rather confusing so may ask my husband to help. We planned to do it all above board but obviously aren’t experts. Yes rent formalised, tax paid etc.

If she can move areas with council housing then even though she would "need" by the rules to swop like for like at least she would be near you.

She might then be able to do another swop and downsize.

Renting from family members is very problematic with housing benefit and there are a lot of rules to prevent people exploiting the benefit.

72/70k that's tight margins if it all goes over expenses

Where can you buy a 1 bed flat for only £70k? Sounds like baloney to me.

Guidance here:

commonslibrary.parliament.uk/benefit-support-for-housing-costs-when-renting-from-relatives/

What would happen to the flat if your dad died before your grandma? That needs to be considered.

@Ifailed Stoke - https://www.rightmove.co.uk/properties/125833631#/?channel=RES_BUY

I’ve looked up contrived tenancy, blimey what a minefield. We weren’t looking to do benefit fraud or anything, not sure what we can do to help her now. She desperately wants to move 😞

How do they know if its a family member?

Not everyone lives in London.

I assume it would pass to me as his only child. His will says all assets to me I believe.

Very poor investment for your dad.

She should just downsize to a one bed where she is then put in for a transfer, like for like, to new area.

I agree, I don't.

My sister rents of me.
she claims UC with rent element
no one has ever asked a thing.