ILs “gifting” home

[Zingtang]

So I’m writing this on behalf of my sister. Shes not a mumnsetter but I told her she would get great advice.

Sister’s ILs are well off. They have offered to buy a home for my sister and her husband. BUT they would want the property in their name in case of divorce. They would charge no rent. Sister has been saving for a house deposit for the best part of a decade. ILs suggest she buys an investment property with her husband if she wants to iwn property.

This is the set up for all the ILs kids who are married. They have had contracts drawn up so they are not turfed out if there was a falling out etc.

Sister is dead set against it. I say why the hell not! She wants a home that feels entirely hers ie she would feel a lodger with this set up.

I think I would be more inclined to live in a house owned by a trust, than owned by the PIL. She needs to see the Trust Deed. She should then invest in property to the same degree WITH her DH, or get rights earned by 'time served' in the marriage. They could live in a bigger house than they could afford, and benefit.

FWIW, with the house being used as a marital asset, on divorce I think he would be hard pressed to argue that it;s not part of their shared life. The Trust would put some people off, but it doesn't stop a judge ruling that it should be split.

I say why the hell not!

YABU. Well done to your sister for seeing past the pound signs. This is a recipe for her to be ‘married' to her in-laws, not just her DH, and entangled in each others’ affairs. In a similar situation, when our DS married and they bought a house, we gifted them a huge deposit (even leaving ourselves short of luxuries, but happily so) with absolutely no strings attached. Her parents did or could not contribute money, but have worked hard helping on the house. It is marital property on divorce. We see them staying together, but you can never be sure. If we were expecting trouble, we’d have kept the money. Some cultures choose their kids’ spouses and all live together. Not us.

PS, it’s not 100% clear what we’re voting on, so go by the comments, not the results.

I'd do it as a short term thing to allow them to save their deposit for their own place. The risk is that this stretches out and the couple get used to all the disposable income and make career decision based on them not having to pay for their own mortgage. As a short term solution fine though.

@Zingtang

Just going to repeat/expand on my thoughts in case it has been missed because there seems to be a lot of one or the other options here but not a lot of people seem to have said you can do two things here…

1. they buy you a house, it is in a trust, you don’t pay rent. Could end up being screwed out of this one in divorce or death but still is a free house so why say no

AND

2. use the money you would have spent on a mortgage, on a mortgage for a second property. Then you build up equity

AND

3. Rent out the 2nd property, use the rental income to put into private pensions and savings accounts in both names.

——————

overall you spend the exact same amount on property as you would if you didn’t accept the free house. But this time you also get a healthy rental income to supplement your joint savings.

if you divorce you go your separate way with half of everything except the ‘free’ house. Which is exactly what would have happened if you declined the free house. But this time your half is of a house AND a healthy pension and investment pot, rather than one or the other depending on whether you chose free house or no free house.

Definitely take the free house and buy a second property to rent out.

Ah, I see FairKoala ... I thought you meant his other assets, but what you said makes perfect sense now

Edited to add I see OP updated to say it's now some sort of trust, but even these can lead to complications, and that's without the major issue of who'ss named as beneficiary

Another comment that this is inheritance tax madness - the estate will have to pay 40% of the value of 5 properties almost as much as the 50% potential risk if the couples divorce. it's only a 10% differential and it could be that none actually divorce and then the government will unnecessarily benefit by a fortune.

we've gone down another route. Buying DD's property but keeping it in her and DH's name though we'll live in it. There's a risk if they divorce of a forced sale but that's balanced by a £200k IHT saving assuming they don't or that SIL isn't a dick - not to mention the extra stamp duty as it's an additional home for the parents.

Though the ILs sound a bit dickish I'd certainly take the opportunity and would buy an investment property and rent
it out.

Or, could she and DH approach the ILs - explain the IHT and stamp duty challenges and offer in writing for her to forego a 10% share of the property value in the event of a divorce if its put in her and DH's name - ie 40% definite IHT payment versus hypothetical only 40% share to divorcing DIL.

Fudging the facts on matters such as property ownership to avoid tax is still tax fraud. Not sure why you seem so pleased with your solution.

Well that's interesting because my solicitor and tax advisor disagree smarty pants

Well you’ve either clearly not written it well enough to explain it, or lying. Since it’s my job, I think I’m pretty well informed. I am a smarty pants thank you 😁

Smart arse as well as a smarty pants then- there's a more complex explanation than necessary to go into on what was merely an aside to the OPs dilemma but I'd prefer not to further derail the thread. I too have a professional background in this area and therefore some smarts - thank you

Hmm don’t like being challenged on a tax avoidance move, OK. The intention of an action in tax matters, matters.

Call me names if you like, I’ll just occupy the high ground away from the likes of you.

Nope. ILs bought us a property, and presented us with an eviction order on our son's first Christmas eve "merry Christmas" was said while giving us it. Needless to say, haven't spoken to them since. Not worth the hassle. I'm with your sister on this.

You mean 40% of the value which is over the IHT threshold ? Not the same as 40% of the actual property value.

Likely that anyone rich enough to buy multiple properties for multiple children will have ‘spent’ their Nil Rate Band pretty comprehensively with other assets including the PIL own home. It is also unlikely they would retain RNRB, particularly after the changes to IHT in relation to pensions come April 2027.

This just feels shitty. Like her husband is not truly independent, like the whole scheme is designed to exclude her. It's not really what most people envisage when they get married.

I'd hate this, personally, and not touch it with a bargepole. I'd want to build a life for myself.

That's before you look into whether it makes financial sense.

This! The best thing your sister should do before agreeing to anything is to talk to an inheritance tax lawyer.

This