Legal/Financial ramifications of buying house with MIL

[florasecretan]

Have also posted this in Money section but think it might be as much a legal dilemma....

My MIL is now 85 and has acknowledged the need for more help with living. She had a stroke a couple of years ago, fully recovered but can no longer manage her large garden and is just generally getting more frail. Her house needs work to make it suitable for ongoing life but really she is at the point where she doesn't feel happy living alone. She doesn't want sheltered housing or care home living and really she doesn't need it at this stage.

My partner is her only child and sole heir and we have no children and are in our forties.

Our outline plan is to sell her house and sell our house and buy a property with a self contained flat/annexe/granny flat type thing.

The financials are roughly that she would contribute the funds from her house sale, £250,000 ish. We would contribute the funds from our house sale, £150,000 ish. And purchase a suitable property in the £375k region using the surplus to pay fees and stamp duty etc.

We are unsure of the implications this move would have for inheritance for my partner and or immediate capital gains issues - if any ... we have limited financial knowledge on this front.

We own our house as joint tenants and wondered whether we would be better buying the new house as tenants in common or joint tenants with MIL.

The main issues that we can think of are what would happen if MIL had to eventually go into long term care? She has cash assets of £100k ish so enough to pay for a long time but would run out eventually. Would we have to sell the house to pay for her care - could we be forced to do this?

When she does die - how would her share of the house be treated? Would it be liable for CGT if we later sold the house?

Are there other issues we need to have in mind? Problems we're not seeing?

We know we will need to see a solicitor to address these issues but want some pointers to read up on beforehand so that we understand the wider picture and the key issues.

NB We are not trying to hide her assets to avoid future potential care home fees - MIL will remain owner of all her existing assets and will (like us) then jointly purchase and be named legal owner of house.

I have a shared ownership of a property with my father so a little similar. The current tax-free inheritance tax allowance is £325,000, by the sound of it her current estate is worth 350k so as it stands 40% of the difference is taxable I.e. 40% of 25k. But in case of shared ownership of property with family member her half will be valued 10% less by the inland revenue so according to info provided her estate could well fall below the taxable threshold so nothing to worry about on the tax front.

Thank you Mondrian - that's useful to know.

I suspect her estate will grow - not necessarily because of any potential property increase - but because she saves like a demon and it will probably be cheaper for her overall sharing bills with us.

Do you have any thoughts on whether property should be owned as tenants in common or joint tenants?

I think as tenants in common she would retain ownership of her share and could leave it to whoever she wanted. As she has her estate willed to my partner I suspect there would be no issues there.

I wonder if the tenants in common route might leave 'her' estate more open to a claim for any future care fees.

I think if it's joint tenants ownership then her share of the property would automatically pass to the other joint tenants on death - but I don't know if this means anything at all in terms of potential care home fees.

Do you know if inheritances are subject to CGT if they are later sold at a profit? Even if the money goes to buy another home?

I am not sure on the tenant status but do bear in mind that as co-owner/tenant you DH will be entitled to 10% reduction mentioned earlier. You really need to seek the advice of a tax consultant to set up the right framework and avoid paying excess tax. It does get quite complicated e.g. If she gave you a gift and then dies within 7 yrs that could be taxed too but I think she can give gift in cash or asset upto 7000 per year without incurring any tax!!!

Thanks Mondrian - it's complicated for sure

It's a balancing act of a situation too because we're having to ensure we look after her and prevent her from putting her assets at risk whilst at the same time ensuring we don't put ourselves at risk.

I think it's definitely going to be specialist advice on this one.

Her share of the jointly owned house < joint tennants or tennants in common> will be subject to paying any care home fees.