Should we build a granny annexe?

[starryuk]

This is actually for a friend...
Can anyone help with legal issues such as deprivation of assets etc.

The father, late 80s, with AD has recently lost his wife. The family is considering the possibility of the father selling his house and using some of the money to build a granny annexe to the home of one of the children.

As the father is effectively simply downsizing and the money being spent on his own 'home' would that be considered deprivation at all if he were to die within 7 years?

How does 'paying rent at the market rate' come into it?

Is deprivation relevant to anything if someone is self funding?

The rules seem very complicated, so if anyone has experience of this, advice and warnings would be greatly appreciated.

Thanks

 

[nitram]

The 7 years is related to inheritance tax, nothing to do with deprivation of assets.

As the father appears to be funding the building of the annex which he will then live in it's hard to see where rent is involved.

Deprivation of assets is only relavant when not self funding but the deprivation can occur whilst self funding.

As the annex is unlikely to be a structure that can be sold I think deprivation of assets will apply.

You need to take legal advice.

Does the father have capacity?

 

[starryuk]

Thanks for that, Nitram.

It is so complicated. I was wondering if anyone had actually done it. But it doesn't look like it!

So it seems there would be no problem 're deprivation of assets unless the father suddenly needed funding for his care.

You are right. A solicitor is needed here. Thank again though.

 

[nicoise]

Should the father decline after moving into the annexe he has paid for, and he needs to move to residential care, there might be an issue should he need funding from the LA if in time his assets fall below the threshold for self-funding.

It could be argued (by the LA) that he has invested his money in an unsaleable asset (other than to the owner/s of the rest of the house) unless the whole place is sold, after a diagnosis which makes the likelihood of requiring residential care much greater, thereby causing a deprivation of assets.

There might also be disquiet amongst the other family members if it looks as though one member has benefited financially via a larger house with the new annexe, even if a caring role is part of the arrangement, from the father's assets/estate.

 

[cliveb]

This is a very interesting and pertinent discussion, because it raises a number of issues, moral, practical and legal.
As has already been said, the 7-year rule is to do with Inheritance Tax and not Deliberate Deprivation. With the latter, there is a "watershed" after 6-months following a financial transaction. If entry to care, with Local Authority funding, occurs within 6-months of the transaction, there is a prima facie case that it was Deliberate Deprivation, after 6-moths the onus is on the Local Authority to prove Deliberate Deprivation.
Is the contemplated transaction Deliberate Deprivation? I think not. If the Family doesn't offer to care for Father, then he may finish-up in residential care and become a financial burden on the Local Authority. By selling his home, investing in a "granny annexe" and being cared for by the Family, he is potentially saving the Local Authority money. Deliberate Deprivation is all about dastardly schemes to shelter your assets, not trying to maintain your independent existence.
My view is that the legal issues should be dealt with by way of the ownership of the altered home. Value the property today, without the annexe, add the cost of building the annexe and then split the ownership accordingly. So, if the property is worth £150,000 today and the cost of building the annexe is £50,000, the Family retains 75% and Father has 25%. The property might then be worth £220,000, so everyone wins.
There are no Capital Gains Tax issues, because the property will still be occupied by the owners as their Principal Private Residence. The future inheritance of the other children is protected, because there is still a valuable asset (although their inheritance may have to be deferred until the property is sold, unless there are sufficient other assets to balance out the shares without selling)..
As has already been said, rent isn’t an issue, because Father would be living in his own property. It would be appropriate, however, for outgoings to be apportioned – Council Tax, Utilities, etc – and, if meals are to be provided by the Family, then a contribution to housekeeping should also be made, so Father pays his way. Otherwise, the Family could be subsidising either the Local Authority, if funded care is needed in the future, or the other beneficiaries under Father’s Will.
If Father subsequently goes into care, and needs Local Authority funding, then the value of his share of the property should be deemed to be nil by virtue of Clause 7.019 of the CRAG (Charges for Residential Accommodation Guide), because, as has already been stated, the annexe isn't saleable independently of the remainder of the property.
Finally, as the question implies, Deliberate Deprivation isn’t an issue for a self-funder, it only becomes an issue once an application is made for Local Authority funding.

 

[starryuk]

Barwellclive.

Great information, I shall pass your post on to my friend.
Thank you so much for taking the time to explain it so succinctly.

 

[mancmum]

I think this is a very interesting reply. Not dissimilar to our own situation.

Ours is complicated by the fact that we have 'encouraged' the oldest son and his girlfriend to move out to provide sufficient bedrooms. We have used father's money to buy a flat in fathers name and son and girlfriend will pay rent. We may still have a gap with seven of us in a four bed house which is now becoming untenable. Untidiest of all dependent second son is the front room which means his grot spreads into the rest of the house more easily. Could we justify paying for him to live somewhere for a few weeks until we complete on the rental flat.

However we might still be faced with the need for downstairs accommodation at some point. we are worried that with a city garden this might actually decrease the value of our house.

How much do you see as reasonable for housekeeping. We have decided within the family to go for around 90% of the basic state pension which leaves enough for newspapers and hair cuts (and the private pension for bigger expenditure).

Does your answer assume that caring host family own their property outright? We will still be paying a mortgage on ours for seven years after husband retires.


What if the host carers die? Presumably unless one of our kids was able to take on caring then it would simply be Move Direct to Care Home.

I think its really good to have a framework like this as a basis for discussion within families.

 

[cliveb]

Granny Annexe (contd)

The solution presented by Mancmum is interesting and innovative. The only potential downside is that Capital Gains Tax could rear its ugly head if the rental flat was to be sold before Father's death. We are lead to believe that property prices are rising, so a subsequent sale of the flat could incur a CGT liability. CGT is effectively forgiven on death, because all assets are revalued for Inheritance Tax purposes (even if no IHT is payable).

Using Father's money to pay for one of his Grandsons to temporarily move out of the Family home seems reasonable to me - it would be like Father paying rent for the bedroom he then occupies.

As far as the outgoings are concerned, £100 per week - 90% of the Basic State Pension - seems generous; where else could Father get board, lodging and care for that amount? The Local Authority would take all of his income apart from a £23.50 per week Personal Expenditure Allowance! Incidentally, you mention State and Occupational Pensions, what about Attendance Allowance? Surely he qualifies?

I'm not sure I understand the question regarding devaluing the house, unless you are inferring that structural alterations would need to be made? Just temporarily turning a reception room into a bedroom seems eminently reversible in the future.

 

[mancmum]

Response to Clive

I have now just got attendance allowance through. I draw all of this out of the bank account and use it to pay for: all activities specific to father and costs that I have to incurr in attending that activity. E.g. trip to cinema to see something I would not go to in a month of Sundays this would fund his ticket and my ticket, his share of things that the whole family do..eg we went out on a stream train as a family birthday trip for MIL and he came too, sitting, some additional help with house work to keep someone on board who will be employed directly as a sitter as and when this is required.

I am noting down what we do in a diary but not keeping a formal record with receipts etc - do you think this is good enough?

Interesting to here your take on the grandson. Father himself in the more lucid times says..its not fair that I have got his bedroom..and I have to say that the poor soul has moved 'space' three times in the last four months.

I have to say it is really tough having seven of us in a 4 bed house and while at 20 he is technically independent as mum I did not want to send him off to live outside the family. I feel son has benefitted from having me on his case 'encouraging' him to get temporary work whilst on holiday from uni. This would not have happened had he been living off site but I am truly knackered from looking after my Dad and four young adults, the cat, and of last week next door's hamsters.

I am trying not to die.

The thing about devaluing property is that you can actually stuff too much into a small garden and then no one wants to buy the house. House next door had a extension with bedroom and downstairs bathroom in a wierd position and has remained unsold for 2 years ...whereas other properties in the estate go pretty quickly.

 

[mancmum]

Should have said ...still waiting for the flat purchase to go through

Should have said. We are at breaking point because we had to wait to get probate from funds in my mother's name to allow us to buy flat. Unfortunately flat will not get bought before the lovebirds come back from holiday so I am going to have to put number 2 son back on the bed settee ...and lose that space for the family.

Or just possibly a tent in the garden. Its all complicated by the fact that number 2 son has gone and got himself a job that finishes at 3am in the morning.

 

[cliveb]

Granny annexex contd

Every carer reading this post will echo your sentiments - caring for a loved one whilst trying to fulfil all your other obligations is enormously stressful.

Whenever you are handling other people's money, even that of a close family member, my advice is always to keep detailed records. Either create a spreadsheet or use one of the proprietary money management programs available - gnucash - comes highly recommended.