Downsize to give money to daughter

[LadyOgilvie]

Has anyone here had experience of downsizing in order to give their child/children an early inheritance?

My parents are keen to do this. They are both around 70, and I’m their only child.

They currently live in a house which was meant to be their forever home, but it’s probably too big for two of them. It’s a 3/4 bed house in a desirable location. They are thinking to downsize to a 2 bed flat. They would then give the difference in cost (roughly £600k) to me so that I can put a big deposit down on a nice place to live.

I would obviously benefit massively from an early inheritance, but I feel guilty. They can afford the running costs of their home, and it’s a lovely lovely house. It’s the kind of place that comes to the market once every 40 years.

I am interested in hearing if anyone has been through this, and did it work for both parties?

There could be problems with that if they need care in the next few years, it could be seen as deprivation of assets.

I wouldnt recommend anyone buy a flat, certainly not one thats leasehold and even share of freehold I wouldnt want

Once that money is in your pocket and your daughters, they wont have the benefit of it but they may be treated the same by the state as if they did have it although Im sure there are ways around that.

I would be depressed going from living in a nice big house that was my forever house, to a flat although if you could get ground floor with a garden that would future proof against any issues in mobility presumably

No experience of doing this but we have given financial help to DC.
While its very generous there are a few things to consider.
Have they looked at any flats? Going from a beautiful house to a small flat might be harder than they think.
Secondly do they have other money to pay for care should one of them need it?
There are potential IHT implications but I presume they've considered those.

Excellent point about the care issue. I will read into it.

My parents claim to be happy to live in a flat. They’d buy a top end one (for roughly £1mil). Yes, I think you’re right, about everyone being scared of cladding issues.

Could they convert their house into two dwellings and give one to you?

Equity release? They get to stay in their home and could reduce IHT payable on death.

deprivation of assets still a key risk though.

I am planning to do similar for my DC - with much smaller sums of money! I am
looking forward to living in a flat and not having responsibility for a garden. I want my DC to be able to get on the property ladder asap

It depends.
Your parents don’t know what the future holds and to give you that much money I think could be an issue even for getting a mortgage as if one or both of your parents pass on or need a care home it could be seen as as a deprivation of assets and need to be paid back or attract inheritance tax.

I would get them to see someone who can advise them of their rights, the pitfalls, tax or other issues things that might crop up in future and a separate person to advise you on what could happen if you take that amount of money and what tax or other implications there could be.

It might be found it is more prudent for them to give you a certain amount of money each year to boost your income.

I think mortgage companies ask where the money comes from and the paper trail from your parents to yourself given their ages they might not be willing to lend. You might find buying a life insurance policy on your parents for the sum equivalent to what you could end up paying in inheritance tax or something similar if one or both needs a carehome if something like that exists would cover things for the mortgage company. This is a thing a financial advisor would be advising on.

I was going to say. I don’t think you can just hand someone that kind of money. It will be heavily taxed.

Would they like flat living, or would they be bothered by possible noise, not having their own garden, or other issues?

Personally I love living in a really good flat. I lived in one in London before we changed country and it was my favourite place to live so far. It had lots of facilities (pool, gym, function room, concierge), well-kept, attractive gardens and a great view. The down side was noise, sometimes from residents but mostly from party boats on the Thames in the summer. We learned to sleep through the noise quite quickly but not everyone is able to do that. When the DC leave home here I am definitely moving out of this house if I can find a flat worth moving into.

I know that my Mum considered moving from her quite remote house after my Dad died, but decided that she loved her garden too much. She has an acre that she made from a field into a garden starting over 50 years ago, she didn't want to be in a flat where she had no control over the garden, nor did she want to start again in a new house and garden.

You can but if they die within seven years you can become liable for IHT. It tapers though so you’d be liable for less each year. I believe there are insurance policies that can cover you if necessary. It’s described as a potentially exempt transfer. It’s one of the ways well to do folk avoid inheritance tax.

There will be IHT either way. The smart thing to do is for parents to gift what they can of their inheritance to their children early, while keeping enough for their future care needs, their own lifestyle, etc. so that the 7-year rule is more likely to be able to reach its full duration and their children get the money and not HMRC.

You can gift whatever you want to your children and if you live for seven years after it then there is no inheritance tax to pay. My mum has been offloading assets and cash to us for years to reduce IHT liability.

With such a lot of money in their estate, your parents would be worth talking to a financial adviser who can help them manage it and advise the best way to free up money that's currently locked in property. If the parents are giving OP £600k and still living in a £1m home and have pensions and other savings, it's v unlikely deprivation of assets will be a factor as they will still have plenty.

They are also smart to downsize now. We are having the issue with my gran where she should have done so years ago and can no longer handle the stairs or the set-up of her home but is now too old to realistically move.

I’d discuss with a financial advisor given all the reasons listed above. If they’re genuinely happy in a flat, I’d be less concerned with the lease / cladding issues

Yes my mum did. She loves her retirement flat. I know they get bad press but this one is genuinely lovely and the service charges aren't that high.

She has two bedrooms, two bathrooms, a balcony and a parking space and it's super central.

Has also doubled in value in 10 years but that's probably more related to location.

Its a potentially exempt transfer, PET, so providing the parents live for at lest 7 years there will be no tax to pay. If they die within 7 years the tax is on a sliding scale.

It makes sense as long as they keep enough by for them to live on and pay their bills ets. The house will be too big for them anyway and a ground floor flat would be better in old age particularly a retirement development It's a win win in my opinion

I also received an early inheritance. We signed a private loan agreement so the money can’t be taxed as technically it’s not a gift, just a loan.

It will be included in the estate at death and iht be due and paid by the estate.

@KangarooKenny the parents can give their daughter all the money and property they own if they want, deprivation of assets would only be an issue if they already had a need for care or an idea that they soon will eg a recent diagnosis.

It could however be an inheritance tax issue if the parent(s) died within 6 yrs of the gift. Ink that case the op could be looking at a huge bill.

I know this is true, but - how do they know?! Can the government go through seven years of bank statements?!

I am planning to do this for my DC. I won’t go over the points already made about IHT and potential care home fees- you can look into all that. I’ll just say that, assuming they are fully informed and understand what sort of place they will be able to afford, it’s a great idea. Downsizing when still active is very sensible and giving you the money makes a great deal of sense. I know when I’m doing this, I’ll feel far happier to be able to help my DC than I would knocking about in a huge house. Plus a flat is a great choice as they get older- they need to think about access (either ground floor or lift ideally). A communal garden they don’t have to care for would be nice. They need to check service charges carefully as these can be huge for people on a fixed income.

Equity release is the dumbest thing anyone can do.

You and your parents need to speak to a reputable financial advisor and a solicitor specialising in inheritance.

There are many tax/inheritance/deprivation of asset issues that you all need to fully understand and explore.

It's not necessarily a bad idea, but it could be if you don't all understand the financial implications.

In the reverse it could be a good idea depending on how long your parents live and again, how the transition of money is handled.

Upshot is it's not something MN experiences can help you with because it's a situation that's very specific to you and your parents.

The best advice is to pay now to good financial and legal advice.

Given the sums of money you are talking about, the cost of good professional advice now is a very wise investment.

Sorry - just to add, you can already see from posts on this thread about the assumptions some posters have incorrectly made about good decisions in these circumstances re: equity release (don't do it) and loans being exempt from inheritance tax.

Get professional advice.

The loan will need to be paid back to the estate . Plus's if a care home is needed the loan repayments will be used to fund the care .

Your DP can gift you a certain amount of money each year with no financial impact ( I think it's £3000 a year but not sure)

Parents can " legally " give you the money or even give you more via good friends eg gift the friend £3000 and they then gift it you . So you can get your legal amount plus gifts of others .