Brother wants to buy parents a bungalow

[Dizzy1984]

Hi

So my mum is ill with kidney failure and is struggling to navigate up the stairs.

My brother suggested that he buys a bungalow for them in his name and they pay the mortgage for him.

My dad then said my brother wants to buy their house from them and rent it out. So in effect the money they get given from him for their house purchase will then be spent on paying my brother's mortgage on the bungalow he purchases.

My dad doesn't understand why I'm annoyed by this. Am I out of order and looking at this wrong. My dad always said that the reason he bought the house was for me and my brother so we both have something.

It just looks to me like my brother is the only one winning in this situation. He's effectively buying the house with money that is going to go straight back to him anyway.

I know they don't have to leave us anything but I can't help but feel annoyed.

This is a really important point

This was the first thing I said to them.

Seems the best way and that would avoid them paying any rent, where as if your brother is involved they will be financially worse off each month with paying rent. Seems bizarre they can’t see that.

This seems a complex answer to a simple issue.

Your parents own a mortgage free house. Due to health issues they want to move to somewhere more manageable.

So they sell the house, use the money to buy somewhere smaller and more suitable. Job done.

Why on earth would your parents want to go from being mortgage free to paying your brothers mortgage?

Is there a reason why he is desperate to keep the family home?

Essentially they are selling their house and choosing to rent. The only difference is that they are selling to your db and renting off your db.

As long as he pays a fair price for their house I don't really see the issue. He's buying two houses and choosing to rent one out.

In your parents position I'd not sell a house I had no mortgage on, to rent another house, seems a bit mad. Unless they want a lump sum of money to spend in their retirement. But people who tend to have to do this are usually cash strapped anyway, so to add rent to your monthly outgoings will make it more difficult in the long run.

How can they not see that in the long run your brother ends up with all of the proceeds from their house and you get nothing? If they just buy the bungalow themselves then there’s no rent to pay and there’s possibly an inheritance for both of their DC eventually. I hope you can at least make them understand your viewpoint before they go ahead.

Can people not see this for what it is?
Brother buys parents house A. Now A is in his name, he then buys house B with the proceeds and maybe a small mortgage which he rents out to his parents. He charges a small rent to his parents. He now owns house A & B. His parents now have to pay rent. The only inheritance left is a small cash sum, which will be split between OP and her brother. However that cash sum has been eaten away because of the rent, and potentially needing a care home. Once the cash capital has been eaten away, there will be no more inheritance and social funding will kick in.
Op will be left with zero whilst the brother has two properties and two rental incomes.
It's a huge swindle to both OP and the tax payers. Even if OPs parents don't need a care home, the capital will be dwindled down so brother still gets his lions share of inheritance (through rent) meanwhile OP still inherits less.
I assume OP's brother has given this a lot of thought, and it's actually a very clever way to avoid paying inheritance tax (if the house reaches that threshold) and later care-home fees long term. But it also potentially shafts OP.

It also puts op's parents in a precarious situation as their son could potentially evict them, or increase the rent at anytime, given he seems content to shaft his sister, I wouldn't trust him to do the right thing by his parents.

If your brother buys the bungalow and your parents rent out their house to pay his mortgage, I think that's entirely fair. He's accepting the risk that their house might not be rented out and he'll be liable for the mortgage.

I'm not sure why he needs to buy your parent's home. That will leave them without a home or rental income. They'd then be using their savings to pay him rent.

It might actually be great estate planning to avoid inheritance tax but, if that's the thinking, shouldn't the bungalow be in both your names?

If your DF is the same age as your DM and in good health he may be renting from your DB for 20 years. If he's on a low salary now his pension isn't going to be great so the money will be deleted even further.

Does your DB already have his own property? So he would have a portfolio of 3 properties? Presumably he's expecting you to do at least as much as him when it comes to practical assistance for your dps as they age? (Doing their shopping, taking them to appointments etc)

Your dps would be much better off selling the house and buying their own bungalow.

What?

The brother is going to own both houses. Check the OP. He’s going to buy the parents’ existing house, and the new bungalow will also be in his name.

It’s an outrageous asset grab, that deprives the OP of any inheritance and that turns his parents from mortgage-free home owners to tenants.

@Dizzy1984 As long as its done at fair market prices I really don't understand the issue.

People are saying why dont they sell their house and buy a bungalow - well they are selling their house - just happens that your brother wants to buy it. (A) this saves on estate agent fees so means your parents get more for the sale.

Then separately he's suggesting that rather than them buying a bungalow, instead they rent one. Depending on the age of your parents that makes sense - means they have a lot of capital (cash) available to spend instead, which opens up opportunities for them to gift money to you both and avoid/reduce inheritance tax (as long as they live more than 3 years...Best if >7yrs). Whether they rent an independent bungalow or one he has bought makes no difference. Renting one that he buys has advantages - (A) he'll be a good landlord to them (B) they'll be good tenants to him and (C) he might get away with renting to them at the low end of market rate and certainly with no cut of estate agent margin so will cost them less.

I honestly don't understand your problem. Instead of having half a house to inherit, you'll have cash. (Which as I say, will allow much more opportunity to avoid inheritance tax). They must have income from pensions, so the rent would come out of that, doesn't mean they'd be depleting their savings on paying rent.

I really don't see your issue.

@Smidge001

OPs parents are almost a decade away from retirement age. With a father in good health, this rental arrangement could last a couple of decades. That lump sum will look very different then, especially if a care home is required for either of them. Realistically her DB will be sat on 2 properties that have risen in value and the OP will likely receive half of whatever is left which may be next to nothing by then and some trinkets. No one is entitled to an inheritance but DB will have ensured a healthy inheritance for himself with no consideration of his sister.

The issue is that the DP currently have an asset that is going up in value. Cash in the bank is not likely to keep pace with house prices over the next 25 years (DP are late 50s, so not elderly).

The DP don’t have high incomes and are currently mortgage free. So paying rent will make them worse off. If they pay rent from the cash in the bank, this will deplete the funds over time, perhaps to zero.

So the downside to all this is that DP have no assets and DB has two houses. Hmmm 🤔 I wouldn’t be happy if I was op.

Yes exactly. And when they are pensioners and the cash has run out, they may struggle to claim housing benefit for help with rent because they rent from close family and it could be seen as a contrived tenancy which is exactly what it is. maybe by that point the brother who has benefitted for years and recouped the full cost of the bungalow in rent might be generous and let them live there rent free because otherwise they won't be able to pay the rent unless they have good private pension provisions.

I don't understand why they'd pay rent out of cash in the bank, why not out of income?

The money that they'd get from the house sale doesn't have to sit in cash either. Invest it, or if they're still away off retirement age then put it in a pension, saving some income tax on entry and any unused can then be passed down with no IHT.

And the comments about DB ending up with an inheritance and none for OP makes no sense. His resultant asset is a result of him buying a bungalow and renting it out. He'd still have the same result at the end if he rented to a third party instead of to his parents.

I just don't think there is anything wrong with this at all. It seems the only valid issue here is whether you think its a bad idea to sell a house and rent a bungalow. It really should have nothing to do with whether the DB is involved or not (presuming market rates).

But if you really cant get your head around this though, why not suggest you and your brother buy the bungalow together in joint names, and then the rent is therefore shared?

Does your brother have enough income to be accepted by lenders for 2 mortgages? If he's doing everything by the book, what's the advantage to him of buying your parents' house and bungalow rather than more potentially suitable rental properties?

If the cash ran out before the mortgage is paid off, would he turf your parents out? Could he afford to pay the mortgage without their payments? It could leave him in a very difficult situation.

Re inheritance tax, there is currently an extra £350k tax free allowance (Residence nil rate band & Transferable RNRB) if parents leave their main residence to direct descendants so I doubt there'd be an advantage from having cash rather than property from that angle. It sounds like they'd be unlikely to be in a position to gift large sums of money 7 years or more before death. (Depends what figures we're looking at.)

Your brother's proposal could massively backfire for all parties - can you have an open discussion about all the ins and outs? Maybe with an outside advisor? You need to come at it as looking at the pitfalls for everyone though and not just that you might lose out.

StedeBonnet · Yesterday 20:44

Is your brother buying their house for cash? So then he buys the other house with a mortgage and they pay him back out of the cash? So he then owns both houses? I mean, nice work if you can get it by screwing your parents out of their own money and your sister out of an inheritance. Don't parent understand this?

just tell this to your parents and brother and see what they say ( and do ) and you will see do they really care about you at all - might be a shock I am afraid. I went through a personal heartache my parents tying their old years and obviously finances all around my brother and his kids. I hope it does not happen to you but seems very much like it, given they seem to be happy with the idea and pretending are blind to WHAT POSSIBLY ???? could be bothering you in this totally evil set up

@Smidge001 i think it is the plan the brother gives them the money for the house (no idea how) which he then rents. He then buys another house (in his name) and then rent it from him and pay back the mortgage using the money he has given them.

he then ends up owning 2 houses, getting the money he gave them back and they end up with no tangible asset to split on inheritance

it is very shady and I would not go along with it.

if he wants to keep the family home why can’t he buy it and with the resulting money your parents buy a bungalow mortgage free.

@Dizzy1984 take your parents to a solicitor for impartial advice.
Make it clear to your parents that you are happy to be guided by the solicitor too.

If it goes as far as a mortgage then find out who the mortgage will potentially be with and make it clear that your parents are responsible for mortgage payments not your db, they will not extend a loan in those circumstances.

It must be difficult for your parents having each child tell them something different.

Book them a session with an independent financial advisor or a solicitor. They can discuss options/estate planning with a professional and then make a decision.

@Smidge001 unless the house and any other assets are over £1m there will be no Inheritance Tax anyway.

You say, take the DB out of the equation. Yes let’s do that and assume DP are selling their house so they can go into rented property. They are cashing out their best asset at 2024 prices and renting for the rest of their lives.

You say the DP should pay the rent out of income. OP says they have low income and are currently mortgage free. I can’t see any benefit to DP of starting to pay rent.

You say invest the cash. Investments can go down as well
as up. No guarantee the investment will cover future rent.

You say invest in pension. Fair point, but SIPPs can go down as well as up.

Personally, I would not want to sell my house to go into rented for the rest of my life. It’s just too precarious.

I honestly don’t see the benefit to DP. Unless their assets are over £1m?

I would lay out the numbers to your parents in a simple way OP.

e.g. they have a house worth £250k, so they have £250k in assets to their name.

They sell the house to your brother, so then have £250k in cash to their name.

They then use that £250k cash to rent from your brother, let’s say at £1k a month.

After 250 months (which is about 20 years, which sounds realistic for your Dad at least) they have £0k left and don’t own a property, so have no assets to their name.

The alternative is they use the £250k cash to buy the bungalow and therefore remain in exactly the same financial position as they started.

Why don’t they buy the bungalow themselves with the money from the sale of their house if they sell it, alternatively they could rent out their house and then use that rent to rent themselves a bungalow

Totally agree. Plus they still own an asset of the bungalow worth (say) £350k in 20 years and have had no rent to pay

It does sound very dodgy. I think though it would depend on what price he'd be offering for their house and what rent he'd be charging them, if this was below market rate he'd potentially be supporting them and could get more from a renter. I don't think the OP should pursue this part of it, because it becomes a matter of their parents feeling they have to defend the brother because OPs saying he's dodgy. I think he probably is trying to get it all, but that argument requires the parents to accept their son is trying to screw them over.

Care home fees, potential impact on benefits, the eroding value of cash holdings because of inflation or alternatively risk of losing them completely if invested in the share market are financial arguments that are seperate of the two children and dont require anyone to take sides. Although houses can crash at least then they'd still have a roof over their head. Might even be able to bring in the argument that if something happens and money goes to care fees on one parent then runs out for the other they wouldn't want their son to not be able to pay his mortgage because they're out of cash. I wonder if the LA could bring a roundabout depravation of assets case against the brother to retrive the money's used up because its going to their child as opposed to renting from a stranger of they then they need care. From what Ive seen on here some LAs will go over the financials with a fine toothed comb in these circumstances. There's lots of emotion free financial reasons this really isn't a good idea.