Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Ownership structure for house

including wills and probate
tsr2
2 Lemon pips
Posts: 227
Joined: June 20th, 2017, 8:30 am
Has thanked: 294 times
Been thanked: 62 times

Ownership structure for house

#409524

Postby tsr2 » May 5th, 2021, 11:59 am

Under my mother's will my brother inherits her house.

The intention is that he will have the benefit of rental income from the house for the rest of his life, effectively providing a pension, but the house should eventually pass to my daughters. He says he does not wish to own the house.

Is there an obvious way to achieve a situation where my daughters own the house but he has a right to let it out and benefit from the income? I assume there are potentially tax and benefit implications. What are the possible pitfalls?

Obviously I will be talking to a lawyer at some point, but I would like to have some idea of what is possible beforehand.

Mike4
Lemon Half
Posts: 7084
Joined: November 24th, 2016, 3:29 am
Has thanked: 1637 times
Been thanked: 3793 times

Re: Ownership structure for house

#409528

Postby Mike4 » May 5th, 2021, 12:14 pm

tsr2 wrote:Under my mother's will my brother inherits her house.

The intention is that he will have the benefit of rental income from the house for the rest of his life, effectively providing a pension, but the house should eventually pass to my daughters. He says he does not wish to own the house.


The unanswered question leaping off the page at me, is does your brother still want the rental income?

To me, saying he doesn't want to own the house suggests he is an unwilling landlord and wants neither the hassle of dealing with tenants nor the rental income, but this really needs clarifying before any constructive suggestions can be made.

WandleHens
Posts: 21
Joined: November 4th, 2016, 10:13 am
Has thanked: 4 times
Been thanked: 11 times

Re: Ownership structure for house

#409576

Postby WandleHens » May 5th, 2021, 3:09 pm

Obviously Mike has raised a pertinent question, but I would like to raise another.

Are your daughters currently home owners? By inheriting a property which they do not intend to reside in, they set themselves up for future CGT. If they are future First Time Buyers they could lose out on valuable government assistance such as Stamp Duty exemptions and/or deposit assistance which is available from time to time.

Would it not be better to sell the property when your mother dies. Depending on the value and other circumstances ( Double nil rate band/ family home residence nil rate band) all or most of it would be shielded from CGT. The monies could then be invested for your brother. This would be a lot less hassle than being a landlord. Maybe you could achieve this via a deed of variation, rather than bother your mother.


Another consideration is whether the property suitable/ up to standard for letting. On 1st April 2018, it became a legal requirement for residential landlords to ensure their Energy Performance Certificates (EPCs) have a minimum rating of E for new tenancies. From 2025, it is believed that the minimum requirement will be raised to D. All part of Climate change agenda 2030, WEF Great Reset etc, etc.

scrumpyjack
Lemon Quarter
Posts: 4814
Joined: November 4th, 2016, 10:15 am
Has thanked: 606 times
Been thanked: 2675 times

Re: Ownership structure for house

#409610

Postby scrumpyjack » May 5th, 2021, 4:42 pm

There is also the IHT issue that by making him effectively Life Tenant of the property it will be chargeable to IHT as part of his estate.
I think you all have 2 years in which the beneficiaries can do a deed of variation to change in effect the terms of the Will if they wish to.

stewamax
Lemon Quarter
Posts: 2417
Joined: November 7th, 2016, 2:40 pm
Has thanked: 83 times
Been thanked: 782 times

Re: Ownership structure for house

#409643

Postby stewamax » May 5th, 2021, 6:54 pm

tsr2 wrote:The intention is that he will have the benefit of rental income from the house for the rest of his life, effectively providing a pension, but the house should eventually pass to my daughters.

He may, of course, outlive the daughters, and their beneficiaries may not be as willing to continue any unofficial arrangement.
Looks to me as a bit of a tax-inefficient and potentially squabbly mine-field. I'd sell it, split the proceeds and let brother invest his share as he wishes. If there is enough for him to buy a (cheaper) house for renting out, fine.

tsr2
2 Lemon pips
Posts: 227
Joined: June 20th, 2017, 8:30 am
Has thanked: 294 times
Been thanked: 62 times

Re: Ownership structure for house

#409647

Postby tsr2 » May 5th, 2021, 7:27 pm

Mike4 wrote:The unanswered question leaping off the page at me, is does your brother still want the rental income?

To me, saying he doesn't want to own the house suggests he is an unwilling landlord and wants neither the hassle of dealing with tenants nor the rental income, but this really needs clarifying before any constructive suggestions can be made.


Yes, he wants the income. I think he's also OK with running the property. I think he wants to avoid any risk of the house being lost to my daughters through care fees or other claims against him or his estate.

He may also think that there it may be possible to avoid it becoming part of his estate, but I don't think his estate will be large enough for IHT to be an issue unless allowances are significantly reduced in real terms. To be fair, that could well happen.

I'm running off assumptions for now, so I definitely need to clarify his objectives before we start paying legal fees.

Mike4
Lemon Half
Posts: 7084
Joined: November 24th, 2016, 3:29 am
Has thanked: 1637 times
Been thanked: 3793 times

Re: Ownership structure for house

#409654

Postby Mike4 » May 5th, 2021, 8:01 pm

tsr2 wrote:
Mike4 wrote:The unanswered question leaping off the page at me, is does your brother still want the rental income?

To me, saying he doesn't want to own the house suggests he is an unwilling landlord and wants neither the hassle of dealing with tenants nor the rental income, but this really needs clarifying before any constructive suggestions can be made.


Yes, he wants the income. I think he's also OK with running the property. I think he wants to avoid any risk of the house being lost to my daughters through care fees or other claims against him or his estate.

He may also think that there it may be possible to avoid it becoming part of his estate, but I don't think his estate will be large enough for IHT to be an issue unless allowances are significantly reduced in real terms. To be fair, that could well happen.

I'm running off assumptions for now, so I definitely need to clarify his objectives before we start paying legal fees.



Looks to me as though a Ltd Co owning the house might be the answer then, subject to those who know more than me about what counts assets and/or savings for care home costs. when I sold the big house in Reading the chap buying formed a Ltd Co for the purpose although I'm still not clear on why he did this. I guessed it is getting more common now as selling the shares in a LtdCo owning a house in the future perhaps doesn't attract SDLT like selling the house personally.

Another aspect not mentioned is anyone (e.g. the daughter) buying a house whilst already owning one gets charged an extra 3% SDLT, subject to some exceptions around PPRs, so be careful of that one too.

tsr2
2 Lemon pips
Posts: 227
Joined: June 20th, 2017, 8:30 am
Has thanked: 294 times
Been thanked: 62 times

Re: Ownership structure for house

#409657

Postby tsr2 » May 5th, 2021, 8:21 pm

stewamax wrote:He may, of course, outlive the daughters, and their beneficiaries may not be as willing to continue any unofficial arrangement.
Looks to me as a bit of a tax-inefficient and potentially squabbly mine-field. I'd sell it, split the proceeds and let brother invest his share as he wishes. If there is enough for him to buy a (cheaper) house for renting out, fine.

We are aiming for an official arrangement, to minimise the risk of disputes. My brother is fond of "clever" arrangements, I want to keep it as simple as possible.

As I see it the objectives are:
1. Generate an income for my brother
2. Preserve the capital for my daughters
3. Minimise tax liabilities
4. Minimise hassle for me

To be perfectly honest selling the house and splitting the proceeds between my brother and my daughters strikes me as a perfectly sensible compromise, but it's not how my brother wants to arrange things. The idea of holding the house in a trust which provides him with an income and then passes the house to my daughters after he and his wife pass sounds to me as if it's going to be complicated. If it would achieve the first 2 objectives it might be worth the trouble, but I will need to be convinced.

At the moment I am instinctively against the idea, but I am trying to get a feel for what the possible solutions are and where the trade offs lie.


Return to “Legal Issues (Practical)”

Who is online

Users browsing this forum: No registered users and 2 guests