Thanks to rising property prices and high care home fees, multigenerational living is making a comeback. To cope with these increased costs, more families than ever before are joining forces and setting up home with older relatives.
Figures from the Valuation Office Agency reflect this trend: between 2014 and 2016, the number of granny annexes in England and Wales grew to more than 33,000 – an increase of 39%.
“As the cost of childcare continues to rise and parents are working longer hours, the popularity of multi-generational households will continue to rise,” said Elaine Roche, partner at JMW Solicitors. But when it comes to moving parents into their own space, rather than into the spare room, there are a few obstacles to overcome.
As both parties tend to contribute funds, the way that you share ownership of the property comes with its own financial – and legal – implications.
For instance, with a ‘joint tenancy’, where the property is owned in equal shares, if one ‘tenant’ dies, their share is automatically divided equally between the other owners.
While owning as ‘tenants in common’ means that while each party has a fixed share of the property, the shares may not always be equal and if one of the owners dies, their share will be inherited by their named beneficiary.
It may seem obvious to buy the property in the latter way, particularly if you have invested unequal amounts of money, but it is vital to consider who would inherit their share and how this could impact your living arrangement. What’s more, if the property is owned in shares by different family members there may also be problems if there are any family breakdowns. If somebody moves out of the home because a relationship ends, they may demand their share of the property or claim a share through divorce proceedings.
Impact on care home fees
The cost of residential care is considerable and prohibitive for most – in some parts of the country between £4,000 and £7,000 per month. So, families are living together to provide extra support to the most vulnerable. But while this is laudable it does have the potential to increase family tensions.
“While the elderly like their independence, it is likely they will eventually need more care than families can realistically give, especially if the next generation are working,” said David Foster, partner at law firm Barlow Robbins.
Should the health of the elderly relative deteriorate and round-the-clock care is required, local authorities will look at the person’s assets to determine eligibility for financial assistance. Under the current rules, assets will need to be below £23,250 in England and Northern Ireland (£26,250 in Scotland and £24,000 in Wales) before support will be offered.
If they own a property – or even a stake of it – the value will be included in the funding assessment. There are situations where your property must be disregarded, should a spouse or another relative over the age of 60 lives there, for instance.
Local authorities also have further discretion to disregard the property in other circumstances where a relative under this age lives in the home, but it does not have to exercise this power.
Looking for advice on care funding? The Saga Care Funding Advice Service, provided by HUB Financial Solutions Limited, is here to help – Take a look today.
Need a mortgage?
If you are combining resources with a member of your family, you might assume that securing a home loan will be simple. Unfortunately, this is not the case.
If a mortgage is needed to buy the property – or even to buy just a share – securing a deal could prove challenging. Typically, lenders are unwilling to provide a mortgage to purchase part of a property because should you default on your payments, they will be unable to recoup their costs as they cannot repossess and sell a home if someone else owns the rest.
Putting all owners on the mortgage is not an easy alternative either, as many lenders are reluctant to give mortgages to people past retirement age.
“Selling your house and moving in with your adult children could have many benefits for inheritance tax (IHT) planning, as it can reduce the value of your estate and therefore means that less tax is liable,” said Roche.
However, the scale of impact on IHT will depend on how the property purchased or funded, and the legal ownership of the annexe – and can go the other way.
For instance, if the older member of the family is gifting money from the sale of their main residence, then the seven-year rule will apply before that gift becomes exempt for inheritance tax purposes.
Making a granny annexe work for everyone
When it comes to sharing the roof over your head – or even a back garden – it’s essential to get professional advice avoid any future disputes.
It’s crucial that everyone involved is on the same page when it comes to how the living situation will work. Who is responsible for household chores and bills, for instance?
“Keep a written record of what your plans are and get legal advice to ensure that you are maximising the value of your estate and are legally protected – either as a tenant or owner of the property,” advises Roche. “Communicate this with the whole family and reflect the change in circumstances in everybody’s will so that there is complete clarity, and this will afford you the best protection in the future.”
Be clear about the cash
Be upfront about how this living arrangement will work financially. For instance, how much will each party invest in the sale price of the property, who will foot the bill for legal fees and who will be responsible for major repairs and general upkeep?
“It’s important to make the finances transparent to eliminate any uncertainty down the line,” says Foster.
He says a licence agreement is a good way to lay out the rights and responsibilities of everyone involved, and adds “That way, there is no uncertainty if any questions are asked later,” he says.
It may be tempting to set up a joint bank account for paying bills in a shared house, but the risks might outweigh the advantages – so steer clear.
Don’t overlook other legal aspects
When buying with family members, getting your will written is an obvious step. But it’s also important to think about what would happen if any of those involved were unable to make their own decisions due to a short-term issue such as an accident, or a long-term problem like dementia.
It makes financial sense that every owner of the property should apply for a Lasting Power of Attorney (LPA) to ensure that all financial obligations can be met should their health change. This legal document allows you to appoint one or more people as an ‘Attorney’ to make decisions on your behalf should you be unable to do so. Find out more at Office of the Public Guardian (OPG).
But bear in mind that there might be complications if you are the Power of Attorney for your parent, warns Roche. “In this case, you are not allowed to make gifts to yourself, or use your parent’s money to fund improvements to your own property, so I would advise seeking professional advice on the legalities of this.”
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