Buying a house to let to my niece. Any pitfalls to consider?

[Lastgig]

I put a post up earlier in the year regarding a windfall I will be receiving shortly. I had some great advice.
My parents had 9 grandchildren, 7 are graduates. Most own their own homes.
My niece has a difficult life. Her partner abused her and she has been left with two children and lives in a council flat with black mould and rats.
Her son is turning 10 this year and she can apply for a house. The average wait time is 7 years.
She does some work but her maintenance is only £60 per week for both children and her ex partner earns £200+ per day. He is a builder. He makes sure he gets paid in cash.
Her parents can't/won't help her.
I'm happy to buy a house and rent it to her and eventually give it to her. I can't do that for three years due to my share holding restrictions.
Sadly I can't do this for all my nieces and nephews.
Any thoughts on downsides? I will give her a lifetime tenancy.

What an exceptionally kind thing to do. I'd just try to find one where you minimise ongoing costs, so no service charge and ideally well insulated and even solar panels so that the running cost is as low as possible.

I'd also see if there is a way that a lawyer can help you ensure that it's hers and that a future partner can't claim half (or keep it in your name for your life).

It is very kind of you but I think you really need to make sure this is thought through. First of all, do not give a lifetime tenancy. You have no control when/if circumstances change which they invariably will.
It is a lot harder managing her as a tenant when she is a relative.

You are unlikely to cover your costs, but it sounds like that is not an issue.
i would agree with her what changes in circumstances may trigger you to consider changes, ie what if she shacks up with some tossed of a cocklodger at your expense ?

Very kind of you but could get quite messy
Do everything legally and as you would if she wasn't family in order to protect everyone (her included).

Things to consider (in no particular order)

All the usual requirements for being a landlord including various safety requirements for the property, tax treatment of the income and complying with legal requirements of tenancy. Will you self manage or pay an agent?

Because she is renting from a relative your niece will never be able to claim rent benefits - this may significantly reduce her income if relying on means tested benefits.

What happens if she moves a partner in? What happens if that relationship breaks down?

As landlord you are legally liable for all maintenance etc. Do you have enough savings /income to cover eg a hole in the roof, new boiler, do you have good trades contacts that can attend quickly for leaks etc?

It’s a kind thing to do but you need to have your eyes wide open and think through all the worst case scenarios

@Sunflowergirl1 i am worried about cock lodgers but she is a very fiesty woman these days. She's had nothing for three years now and I don't think she'd let someone screw her over again.
I've been quite unwell and if I die I'd want her to have it. What she couldn't do is pay the tax on it. My son and daughter could inherit it and let her live there though.
They are well looked after.

If she inherited it it would be for the estate to pay any inheritance tax unless there is not enough money in estate to cover this. Also it is possible for her to claim Uc for the rent provided certain rules are followed so it is not a sham tenancy. I am not sure if you want to rent her the property as a normal tenant or grant some other form of lease/ ownership. Brilliant idea just take some advice and make sure everyone is as happy as possible with it.

My understanding is she can claim for help with the rent, As long as there is a proper tenancy agreement in place

No advice but I think you’re a wonderful aunt

You sound really nice

I would also make sure your own children are aware and on board with this to prevent any big fallings out in the future.

What a wonderful plan. Please pay for some professional legal advice to ensure your plan is watertight - for both your sakes.

If your children are happy about this, I'd give them the house, have them rent it out to her, then save that money (after tax) in a savings account for her, for repairs to the house and as a nest egg for her future. That way, if a cocklodger does happen across your niece (they can smell out money a mile off) then they don't have any right to ownership, or even to live there if she doesn't want them to.

I'm sorry you're not well. Don't be tempted to buy love or affection from your relatives who are not kind to you. In fact anyone who asks about your will should immediately be struck out of it.

And paying market rate! The authorities will be all over this arrangement, they will often say it’s not an arms length agreement when family members are involved in my experience

As you are asking for downsides I would say resentment from your other nephews and nieces and possibly your kids e.g. the ones that got their heads down and worked hard not offered the same help. Are they all "home owners" as you say or will they be paying their mortgages for 30+ years?

I think you would be naive to think your kids could inherit this house and just happily let your niece live in it until she dies. Most people inheriting a house would like to cash it in to upsize their own home, put in their pensions, reduce their hours at work etc. If you want your niece to have the right to live in the house for life you will need to get it wrapped it up legally.

Other things that could go wrong are your niece not looking after the property (is the black mould definitely not caused by lifestyle issues of not heating and ventilating adequately?), your niece not paying the rent (even if that is not passing on what is given to her by housing benefit or not claiming it) and excessive repairs that you were not anticipating.

Let's imagine your windfall is 180k plus. You could give your own kids and each niece or nephew 20k. The ones that are "home owners" could be given it to pay the sum off their mortgages (or perhaps for home improvements if you agree) the ones that are not yet homeowners you could keep it to provide a deposit when they are in a position to buy.

It's often discussed on here whether kids (in your case nieces/nephews) should be treated the same or according to their needs but in my opinion giving one a free house and the others sweet FA is a whole lot of steps too far.

If you must by the house for your niece to live in I think when you die it's value should be split between all nieces and nephews (assuming you are happy with what your kids are getting) or simply form part of your kids inheritance. Hopefully before that time your niece will have decades to improve her financial position.

It's possible in a couple of years time your niece has a great job and one of her siblings (God forbid) has a disability due to an accident or degenerative condition. Circumstances change. Your niece is also more likely to sit back and do nothing much with her life if she is being given a house because she is more needy than the rest.

@Winter2020 thank you for your well thought out response.
We have solicitors in the family including another niece of mine. She is sadly quite grabby.
When I had money twenty years ago I shared it around the family. First cars, weddings, holidays, schooling etc. I paid for or provided all of my late parents care. My siblings have paid off their mortgages. Both with good pensions.
The sum to be received is very large.
We've been rich and poor so I don't want to not make generous provision for my DH and DC. For that I have taken specialist advice.
Two of my nieces are not very nice. I will give them something in my will but they both own houses at 25/26 due to my late brother's estate. They are talented and educated. They don't really keep in touch since he died.
My husbands family have money bar one sister. I will help her but she is highly likely to refuse.

I'm sure i remember reading that UC won't pay rent on property owned by family members unless there is a proper rental agreement in place and that the house has already been rented to someone previously.

I believe uc is paid on a tenancy agreement at market rent. Aunt is OK.

My niece may be going back to work shortly if she can get compressed hours. She will pay her own rent.

@Lastgig do you need an income from your niece as a tenant? Or can you gift it to her now, but with conditions, in trust?
are you looking to secure your niece a home? Or a home for her child?
REALLY work out your intent and then speak to a solicitor about the best way to do it and who will manage it!
if you think she’ll want (or you want) her to pay some rent, you could hold this in trust for her/her child and/or the legal & professional fees for managing the property.

if the house stays in your name you’ll have to pay income tax in a commercial rent, regardless of what’s paid. So looking at a trust could be a good option from that stance too.

LOTS to consider. But you need to work out what you want to achieve and then get the right paperwork in place.

I don’t think leaving it to your children to own is fair, as they may turf your niece out, or she may feel obliged to go. Getting the right paperwork in place from the offset may well save other hassles or confusions later on.

I know this is a drip but my niece is the sole beneficiary of her childless godmother. She is 70.
My worry is her male child sleeping behind a curtain or my niece sleeping on her sofa until he is 17/18. That is her reality now. She can't afford child care on top of open market rent. A three bed locally is £1400, non standard construction on a rough estate.
If she's working I can charge her a peppercorn rent.
My DC are a London professional and a PhD student. They have had alot of opportunities.

Why don't you let her stay in your house for 7 years until she gets a council house?

@BoundaryGirl3939 i think she has to go to the bottom of the list if she gives up the flat. It's classed as a transfer I believe on age bans.

Wow!! I can't help with advice on the technicalities but what an amazing woman you are. So kind. The impact of this on your niece and her dcs will be huge.

Would it be the end of the world if she did go to the bottom of the list, and had to wait longer? She could live in your home rent free in the meantime.
I would be very iffy about handing a property over but that's just me.

So your niece will inherit quite a bit from her godmother one day.
this means she only needs support for the interim.

inwould possible leave the house to your dc with some condition that it remains for the niece to live in on a fixed rent until she inherits from her godmother.

if for some reason the godmother doesn’t leave her estate to niece then I don’t know

Or just help her pay her rent until she gets a council house