Should my brother and I buy our 91-year-old mother's house - is there tax to pay?
Family purchase: Would there be any repercussions if my brother and I were to buy my elderly mother's house (Stock image)
I am looking for help or information on the subject of buying my mother's house with my brother.
I have a 91-year-old mother who at present is fine and well.
Would there be any repercussions if my brother and I were to buy her house, which is worth approximately £180,000, and she has about £20,000 in the bank.
We are just trying to think ahead in case she has to eventually go into a home.
I know she is well under the £325,000 for inheritance tax.
But we are not sure if there would be any tax to pay if we purchase her home and let her live there for the rest of her life or if the decision is taken out of our hands and the authorities say she has to go into a home.
Any information would be gratefully received as we don't know who to ask.
Tanya Jefferies, of This is Money, replies: The plan for you and your brother to relieve your very elderly mother of the responsibilities of home ownership might sound simple and sensible on the face of it.
However, there are several different tax issues to weigh up, and also potential pitfalls if you purchase your mother's home for anything less than its full market value and she later needs funding from her local council for her care.
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In the latter case, the council could decide your family was trying to deliberately avoid care fees, and still count the house's full value in any future financial assessment of your mother for care funding.
We asked a lawyer experienced in this area to run through the various matters you should consider before taking this step - see below for his response to your question.
You would presumably instruct a solicitor yourself about a house purchase, but as you will see from what he says there are issues beyond conveyancing practicalities to think about on the legal front.
Ben Tyer: If either of you or your brother were to pass away, get divorced or become bankrupt, the property ownership could be redirected elsewhere
If your mother is in good health and has full capacity, she could need a lawyer of her own to talk her through the ramifications of selling her home.
If you and your brother have power of attorney for your mother, the following article link involves a very different family situation - in your case, you are clearly trying to act in your mother's best interests - but has useful information about people's duties when selling an elderly relative's property.
Ben Tyer, partner at law firm SAS Daniels, replies: If you and your brother purchase the property, your mother’s financial position would remain the same because you are simply swapping the value of the house for cash in the bank.
It would therefore be neutral for inheritance tax and care home fees, albeit she would be able to spend the money more easily.
Your mother would need to understand that after selling the house, her accommodation security is at risk.
As new owners you and your brother could potentially evict her (admittedly unlikely but families fall out).
The property would now form part of your and your brother’s estate, so if either of you were to pass away, get divorced or become bankrupt, the property ownership could be redirected elsewhere.
There could also be other potential tax consequences of purchasing the property.
For instance, if you already own another home then the purchase would not qualify for Stamp Duty Land Tax relief and a surcharge of 3 per cent of the property’s value (£5,400) would apply.
In addition, if you already own another home, it may mean that if you eventually you sell this property for a profit it could incur a capital gains tax charge.
In terms of care home fees, your mother is above the £23,250 threshold (assuming she lives alone) and therefore would have to pay the full cost of any care home fees herself.
Purchasing the house would be neutral as mentioned above because she would instead have the money in her bank account.
If you and your brother were to purchase the property for an undervalue or if it were transferred into your names for free, this would be a gift of some or all of the property by your mother.
If she were to eventually go into a care home and the local authority were asked to pay the fees, then they would undertake a financial assessment.
Upon discovering that the property had been given away (in full or in part for an undervalue) they may investigate the arrangements.
And although your mother is well, if they could establish that the property was gifted for the purpose of avoiding care home fees and that she had a reasonable expectation of the need for care and support in the future then they would very likely consider it as a ‘deliberate deprivation of asset’.
This is where the local authority identify circumstances in which a person has decreased their overall assets to reduce the level of the contribution towards the cost of their care.
In so doing, they could treat it as if your mother still owned the property and charge her the full fees accordingly.
Or, as the recipients of the property, the local authority may hold you and your brother liable to pay any outstanding care home fees on the basis of your mother owning the property.
