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

Loads of places!!! Could get a 3 bed house for that in Hull!

Yeah this ^

Why does the decision have to rely on rent being paid?

Move her anyway as a family decision. Forget the rent if its no longer possible. Your dad will get appreciation on the flat rather than savings in the bank and interest rates will head down anyway.

The property growth will be free of CGT if you structure it as a trust. See a STEP solicitor when conveying the property.

All I can see is 'rent -v- family happiness' and the rent post tax and the hassle of Self-Assessment may not be worth much at all.

You have to sign the forms to say that you aren’t renting from a relative. I guess it’s fraud if you lie.

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

Wow. What a huge risk, for both of you. Bonkers.

There would be no problem with your Dad buying a flat and letting his mother live there. Charging her rent from her pension or whatever, knowing that eventually he will have the asset of the flat which can be kept and let to someone else, or sold.

The problem is that in the OP you talk about using housing benefit to rebuild his savings. That's not OK.

You absolutely can claim HB when renting from a family member, though there is additional scrutiny.

This wouldn't be considered a contrived tenancy. Contrived is where the tenancy is specifically created to claim HB. That isn't the primary motivation in this case, and any local authority would be hard pressed to prove this at a tribunal.

It could well be seen as a non-commercial tenancy. Your father would have to prove that he is acting as he would if the tenant were not a relative. The local authority is likely to look at whether the appropriate safety certificates have been obtained, is a formal tenancy agreement in place, has the rent been set at a commercial level (I.e. is it close to the going rate in the area), has he registered the income with HMRC, would be prepared to take enforcement action if the rent is not paid on the property.

It can be a lengthy process, and many of these cases end up going to a tribunal. There is no guarantee HB will be awarded.

Mortgage companies don’t like you buying a house and renting to friends or family members either.

I was interested in this question and looked at an information sheet from Shelter.

My interpretation is that it will not be a contrived tenancy as your dad is not also living at the property but a local authority might interpret things differently.

”Housing benefit is not payable when a person lives with a close relative and pays rent to them. However payments to close relatives whom the claimant does not live with do not fall under this exclusion (although the local authority may try to argue the letting is contrived or a non-commercial arrangement)”

It goes on to add

“Housing benefit is not payable if a person's agreement to pay rent was set up to take advantage of the housing benefit scheme.[6]

To deny housing benefit for this reason, the local authority must be satisfied that the main reason for creating the liability is to obtain or increase housing benefit entitlement. Local authorities must consider each case on its own merits.”

You need to check carefully before making a decision with your own Local Authority.

As other people have pointed out, there are lots of other things to consider regarding renting out a property, your dad will have to follow all the legalities of being a landlord, eg have the relevant gas and electric certificates, collect a deposit and keep it in a deposit scheme etc.

Aside from the benefits issue which others have mentioned, your margins are very very tight here. If £72k is all the money your dad has in the world, and he spends £70k of it on about the most illiquid asset possible (a property lived in by a beloved and vulnerable elderly relative, not really easy/possible to either raise a mortgage on that or sell it), his £2k remaining cash is not going to go very far in the event of something going wrong with either his own property or the flat or elsewhere in his life e.g. car breakdown, £2k won't even cover a new boiler never mind something more substantial happening e.g. leak or rewiring. And it's going to take a long time for his savings to rebuild at the kind of token rent you can reasonably charge a pensioner on universal credit.

I'd really explore further the options for her to stay in some kind of social housing if the weirdness of the system means a temporary move first on a like for like. Has she looked into over 55s housing as (a) there's usually much more availability for this than normal social housing, in a lot of areas there's actually a surplus so no wait list (B) I'm a big fan of it for older people, there are nice modern complexes now that aren't remotely institutional but there's often light touch assistance built in e.g. alarm cords, an on site manager, bills built into the rent so finances are very easy, plus also a bit of a community with social activities happening in communal areas, sometimes even a meals service or canteen. Much easier than struggling in own home and getting isolated or relying fully on family...

Sounds like a good idea in theory but as you have now found out, it's against the rules. You can't buy a property to rent out to a relative and then they claim benefits for the rent. It's the 'contrived tenancy' thing. I think it's different if you previously owned the property and rented it to an ordinary tenant.

My parents have done this for a family member in need of housing, but we knew from the start that they would not be able to claim benefits. All my parents get from it is the sense of satisfaction in helping family with a suitable home, and possible appreciation in value of the property in the future. I can see that would be a big sacrifice for your dad though, as the purchase would use up his entire savings, which was not the case with my parents.

It's an awful shame though as I can see that it would be much nicer for your grandma to be near you all. Is there any chance you could chip in maybe and be joint owners with your dad, or are there any other relatives who could help?

OP, are you sure the Council will only offer a like for like swap? Most local authorities are desperate for 3 bed council houses to become vacant so she's highly unlikely to get one in your area. Has she tried to do a mutual exchange?

Also meant to add that the best investment would be for your dad to give his mother the money to buy her council home. She should get a 70% discount if she's been there over 2 years. You couldn't sell it for 5 years but you can let it out until then and your grandma could rent a small flat with the proceeds in your area.

I think that's the best scenario investment wise.

Sadly not, we are all she has.

Thanks all for your help.

Definitely investigate council properties reserved for older people.

Can your grandma apply for social housing in your area? Usually over 55 accommodation is easier to get.

Im not sure it’s a great investment if it’s all the money your dad has, and you need housing benefit to pay the rent.

I'm pretty sure housing benefit can't be paid to family. If they did it without declaring it that would be benefit fraud.

Has she made them aware she rents from her sister? It's benefit fraud.

She needs to go on home swapper. She'll easily be able to mutually exchange to a one bed even if there are more than two parties to the swap e.g
Grandma 3 bed to 1 bed
Mr A 1 bed to 2 bed
Mrs A 2 bed to 3 bed.
Although the distance might mean it takes a while to find a suitable exchange partner.

That would be because she must have signed the form to say she is NOT renting from a family member, so committing benefit fraud you are complicit in.

If your dad has the financial means to buy a flat in cash for grandma to live in, can he not just do that and not charge rent. He will be able to sell the flat when she passes away and get his money back then. There’s no real need to make a profit when the priority is to have your grandma closer surely.

If she is already getting HB she wouldn't be renting from your Dad in order to get or increase her HB, so from what was written above it should be OK. Can someone talk to Citizens advice to get some definitive answers? It seems like a pretty grey area, but worth investigating. It would seem unfair to take away her HB just because she moves and choses to rent from your Dad at the same or less cost and not living with him.

But he is using ALL of his savings to buy the flat and needs some income to at least build up a bit of spare cash.

You could help set her up in a local privately rented flat with a deposit etc. she could then claim HB.

Surely you can see why this might be seen as inappropriate? Your dad will end up with an appreciating asset and will then recoup his savings on top from government benefit payments. It's not like it's a property he already owns and he will lose tenants to accommodate grandma, he is buying it with the intention of doing this, which is why it will likely be seen as a contrived tenancy