Should I downsize with my daughter?
Q: I’d like to help my daughter onto the property ladder. I want to downsize. Is it a win-win?
I’m in my late 60s and paid off my mortgage a long time ago on the family home I’ve lived in for 40 years. I’m looking to downsize and by doing so, I wanted to offer my daughter some money from the sale of my home to purchase her own - she is currently renting with her husband and two children and is struggling to get on the housing ladder.
She then suggested that we used the money to purchase a bigger house, so that I might live with her and her family. I am on my own now my husband has passed so it would be great company for me. Plus, as I get older, she will be closer by to help out.
It seems like the perfect solution, but are there any pitfalls to downsizing and living with my daughter?
A: As with anything in the eyes of the law, this is fraught with difficulties.
It’s also something families find themselves trapped in, despite wanting to do the right thing by mum or dad, as your daughter is trying to do for you.
Plenty of people give money away to offer lump sums for things like house deposits for children or grandchildren. However, the general rule for Inheritance Tax (IHT) is that you must remain alive for 7 years after gifting that money, or asset, otherwise, the recipient of that gift will be required to pay the tax - and it is a hefty 40% of everything above the threshold, which, as of writing this, is £325,000.
With cash, the rules are quite straightforward, but, if you plan to purchase another property with your daughter, that’s where things can get a little more complicated. We have dealt with incidents previously where the deceased’s estate has fallen under a law known as a “gift with reservation of benefit”. That means, by giving the gift to your daughter to buy a property that you will continue to live in, you continue to benefit.
Therefore, if you were to pass away, the property would still make up part of your estate and the seven-year rule would not apply to your daughter - she would have to pay IHT on the full amount of the estate. We’ve seen time and time again how people have been caught out by this law, so make sure you and your daughter do not fall into the same trap.
Plus, should you require care in your later years, or move into a care home, your estate and assets are taken into consideration when it comes to help and financial support in providing that care. The threshold varies depending where you live, but some councils will consider the sale of an asset as to whether or not you have “deliberately” made yourself look less well off, so that you can benefit from fee subsidies. They may look at the sale of your previous home, but it may get tricky again if that money is tied up in an asset that belongs to your daughter.
As well as some of the likelihoods we can predict, like going into care, there are a few we cannot. What should happen if your daughter or her husband were to become bankrupt? How would you protect your “part” of the asset and where would you live?
What does the future hold?
What’s more, you might meet someone else, find a new partner or even remarry, which makes things different again in the eyes of the law.
My advice would be that it may well be best to keep everything separate. I appreciate legal advice is often the most stark - particularly when emotions are involved. It’s very kind of you to want to help your daughter and her growing family and it was equally kind of her to offer you a lifeline in your older years. However, circumstance is much less forgiving, and unemotional - and by keeping everything separate you are protecting yourself and your daughter’s family from any unexpected consequences.
I hope that has been helpful, but if you’d like any further advice, contact the Private Client team at Downs Solicitors to see how we can help.