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.

Hiya,
My aunt did exactly that for me and my son. She bought a house and I rented it off her for 9 years. I am one of 5 neices and nephews for my aunt and luckily given the situation that drove her to help, no one begrudged it for me. Obviously my rent as the cost of the mortgage. But as she cleared the mortgage in a year my rent stayed the same. Over the years my situation improved and I was able to buy it off her. Generously, i was charged what she paid for it back then minus 9 years worth of rent, which my my down payment. I'm very lucky I know but my aunt never made a penny off me. As part of the agreement I paid her capitol gains tax post sale, so whilst she made no money off me, I didn't cost her any money. I'm in my 4 th year of owning the house and as a single working mother and the cost these days I hand on heart say I really could not have done it without her. For reference I'm the eldest of the neices/nephews and I was the last one of us to purchase a house.
If you feel that really want to help then go for it because further down the line it's going to he a massive boost to her.

Just as a Fwiw I grew up on a council estate and we were often in financial trouble. Hence why I can't bear her to be in such an awful situation . It's not the estate as she is happy there with good friends. it's the condition of the flat. Her mum won't help and her father has dementia and lives abroad.
She won't be poor for ever, it's getting over these next few years.

She may not get universal credit help towards her rent, as you’re buying it solely to rent to her, it is a contrived tenancy and will likely go to a decision maker. Having a proper tenancy helps but the fact that you will be buying this house then immediately letting to her won’t go in your favour. You have to consider what will happen if they don’t pay her housing element .

@KmcK87 good point. Ridiculous though as it will free up her flat for another family.

I noticed you’d mentioned one option being to leave it to your kids for them to continue to rent to her. Be careful with this one. A family member did something similar. Was adamant his kids were already set for life they had good jobs, amazing salaries, nice houses in nice areas etc etc. When he died he left a hefty chunk to a niece. Well one of those kids (who needed nothing) did everything in his power to ensure the niece got nothing. You’d be surprised what money can turn even nice people into. If you really want her to have it then leave it to her. But make sure it’s all legal and above board just in case.

@Missy198005 oh well done you.
I feel exactly the same as your aunt. I know she will improve her lot. She finds it overwhelming at times. She is ADHD diagnosised as is her daughter. I've always looked out for her due to her difficulties. Her mum didn't help through her schooling or now. My sister is scared of ND people as we had a mother with pretty devastating conditions. Not well understood at the time.
I probably only need to help until secondary school.

It's a headspace filler!
I shall end up giving them all a six figure sum out of guilt and that will piss my DH off. He thinks some of them are grabby gits.
We've been here before with a windfall.

This is so kind of you but I would discourage you from doing this. Renting to family can be exceptionally messy (even if the family are super close) and I’ve seen court cases end up happening over it.

I am sorry your niece has been through such an awful time but I would not be doing this. Instead I would be helping her as much as I could with finding somewhere safe to say. I’d have no issue with a niece stopping at mine until she’d found somewhere but I would
never buy and rent out to family.

I don't think she will be able to claim when you have bought the house just to rent to her. Ususally with relatives you have to prove that you have rented the prpoprty out in the past, I have seen claims like this turned down.

I rent from family and get the rent benefit

I get rent benefit and rent from family

Only if it's a genuine tenancy, not a contrived one and you'll be hard pushed to persuade them that buying a house solely to rent to her is not a contrived tenancy. Especially with your plan for a lifelong tenancy.

For her to qualify it has to be a genuine tenancy and you would have to be treating her like any other tenant - ie evict if she stops paying.

I had a tenant who is my cousin, but we didn't know it was going to happen when we were originally linked by a council rental scheme (I hadn't seen her since I was 7 and have changed my first and last names) and her housing payments were stopped for 5 months (despite the original housing officer saying it wouldn't be a problem) before they agreed it was ok. That was despite me being a landlord for many years already, and her being my third tenant that was introduced by the scheme.

If you have money on this scale why not just buy your niece a modest property in good condition in her own name now from the outset?

That way there would be no inheritance tax (assuming you survive the 7 years but reducing on a sliding scale anyway), no capital gains tax if the property is sold, a secure home for your niece with no chance of her being turfed out if you die.

Also no need for landlord safety checks, insurance, tax returns, no need for you to pay for maintenance.

Why wait to give it to her?
You can then choose not to leave her money in your will in reflection that she has had her share or still leave her money too. Up to you.

I like you even more after reading this! Do what is best for you and only those you care about

Just to add, I did claim housing benefit in the early days as a low earner. At the time it covered about a third of my rent. As I earned more that finally disappeared. I dont or understand UC as it was just coming in at the time.

Your idea is very kind but complex to implement & ensure everyone is protected but you are not taken advantage of.

Maybe help her improve the condition of her current flat until she can get a more suitable council property?
It is possible to clean mould and prevent recurrence -will be relatively cheaper than buying a property. Then the health risks will be removed.

In the meantime you can investigate options that will benefit her without undue risk/cost to either of you and also reduce the resentment/envy from other relatives.

Maybe a deposit for a property if the wait for council house option is too long. You could maybe buy property in joint names to protect from future cocklodgers?

Just a few ideas to consider.

In my experience, money is a great destroyer of relationships - the person being helped can become entitled or resentful that they are in this position, though initially grateful.
And others can become envious of the help given even though they are in no need themselves.
And if the person giving the help feels that the recipient is spending on things they feel inappropriate this can cause issues further in in time!

I hope it works out well for you all.

Inheritance tax can be paid over a 10 year period, so may well be affordable.

💐

Could you outline the sort of sums your children might get compared to the niece? It sounds like she may well be quite well set up via the godmother later on but perhaps could benefit from some support over the next decade. The only worry I’d have is if you give her too much, it’ll remove and drive and work ethic for her to get more sorted.

I think it’s important to know why her own parents won’t or can’t help her.

@Bunnycat101 my sister has modest savings. No high powered job. She will leave her estate to her two children. She's 60. She again has a difficult relationship with our family, we are non contact. She does help her with food and small amounts of money but due to our childhood she is terrified of being poor or in debt. My niece's father lives abroad and has dementia. He doesn't even know the time of day. My sisters opinion is she got into bed with the wrong person but takes no responsibility for fucking up her childhood. My sister was a serial adulterer. Rare but there you are. My sister would not have enough savings to buy her a house. A three bed is £250k around here (South).

My own adult children will receive £1m plus in trust. This is being dealt with professionally.
My husband gets everything else if he out lives me which he probably will.

At times we've had very little. I was the family ATM. I paid for all my late parents care. They lived with me. Sometimes I fed us all on less than £40 per week but I'm a very optimistic person and my prospects improved after covid. I had no school age children or dependent parents. As a woman that makes a difference still.

I helped a young company for nothing. They gave me shares. That company is being sold. I've sold companies before.

@Lastgig
I'm doing this for close family member, into 2nd year, no pitfalls at all, you know your niece, will she be a good tenant?

We have a tenancy agreement in place, a slightly lower than market rent, i've told her to treat the place as she would her own house.

But i made it perfectly clear to her that i now wear 2 hats, one is as a close relative, the other as her landlord.

Its also a very good financial deal for me, the running costs are small, £70pa for a gas certificate and 5 year EICR at £150, i get a good tenant, a return of about 5% after taxes plus any increase in house prices and she gets a secure tenancy, i'll never evict her and a pro active LL.

On any UC, its irrelevant the relationship between LL and tenant, so long as they are not in a relationship - living in the same property, the relation takes on the responsibilities of a LL and there is a proper tenancy agreement in place.

I think that is a very kind thing to do and it will make a huge difference to your niece and to her children.
I would talk to a solicitor with experience in property, they should be able to talk you through everything including what you need to avoid to protect both yourself and your niece.

Generally, you cannot claim Housing Benefit if you are renting from a close relative who lives in the same property. This is because the benefit is designed to help people with the costs of renting a separate dwelling from a landlord. However, if your aunt is not living in the same property as you and you have a formal tenancy agreement, you may be eligible for Housing Benefit.

Here's a more detailed explanation:

• Close Relatives: relatives are defined as your partner, parent, child, step-parent, step-child, sibling, in-laws, and their partners.

Would you evict her if she didn’t pay rent ? If not Uc won’t pay housing element as it won’t be seen as a genuine commercial tenancy. You also can’t charge her “peppercorn rent “

The relationship between the LL is not irrelevant on UC. If the landlord is close relative it would go to a decision maker to decide if housing element can be paid. They will be looking to see if a contrived tenancy exists