Navigating Intergenerational Home Sharing
Every so often we are asked to advise on matters which cause us concern because they are much more complex than it initially appears. This is particularly so in the case of intergenerational sharing of homes.
There are many instances when sharing a home between parents, children and grandchildren is a huge success and a great benefit to all concerned. Sadly, however, there are occasions when the arrangements do not work out well and the plans come apart even though the proposals were very simple.
What could be more natural than parents agreeing to purchase and share a home with their child (normally just one of their children), their child’s spouse and their grandchildren? The pooling of resources means that a suitable home could be afforded for the enlarged family, which may often contain a separate self-contained dwelling, such as an annex, for the grandparents.
When the proposals do not work often one of the factors set out below is the cause of the problems:
1: Getting Along
Before the arrangements for sharing a house were proposed the parents and child would each have own their separate homes and their own independence. It is highly likely that they would not have interacted on a daily basis and possibly because of this, it would appear that everyone got on well. The proposal of sharing a home means that both parties are giving up their independence to become dependent on each other. Long forgotten are the strains of living together, in particular, the memory of having a teenage child at home. However, it is not the relationship just with the child which is important, it is also the relationship with the child’s spouse or partner and their children, which is also crucial and has often never been really tested. Living in close proximity to each other can cause considerable strains between the parties, in particular, as actions, attitudes and behaviour can all become too much and too annoying for one or other of the persons involved.
It may seem a Godsend for the child to have an onsite babysitter for their children and, if used sparingly, a joy to the grandparents. But these sorts of arrangements are capable of abuse and the child expects too much of their parents in not only looking after their children but the house as well. This leads to a feeling from the parents that they are being “taken for granted”.
It is difficult for those involved to understand one another when, perhaps, they have not lived together for 15 or 20 years.
2: Moving Away
Ideally the new home would be bought in the area where both parties have lived. They would, therefore, have their existing contacts, friends and know how to occupy themselves. If one or other of the parties has to move to another part of the country which they are unfamiliar with, they will lose their contacts and friends. Starting again from scratch will require a considerable amount of energy and determination and it is because the parents are lacking energy to create a new life that these house share arrangements are often proposed. Apart from missing friends in the area which has been left this can, therefore, lead to a feeling of great isolation and loneliness for parents who have moved to an area outside the one they know and that loneliness can be an added pressure on the child.
3: Security of the home
If the parents and children own their respective shares of the new home, that share is their own asset. This asset will have to be taken into account if the parent goes into care and if it represents a substantial part of the children’s home, how will the children deal with that situation? They cannot mortgage the property as they do not own the whole of it, unless they buy out their parents, although it is unlikely that they could afford to do so because often these arrangements are entered into to provide a nice home for all the family and pooling resources is the only way to achieve this.
If any occupant of the home is a close relative (which includes a child-in-law) and aged over 60 or is incapacitated the house is disregarded in assessing the liability to pay care home fees. However, it is unlikely that the child would be over the relevant age.
To get round this problem there is often a temptation for the parents to give the child the money to buy the home in the child’s sole name or to give the child their share of the home. Unfortunately, we see cases where the children and their spouses are pressurising parents to do this because of their fears of paying care home fees or Inheritance Tax. Since the share of the house is likely to be the parents’ main asset, if they give it away they will be left vulnerable with very few resources and in any event, the plan may not work as:
a. The Local Authority may regard the gift of the share of the house, or the money to buy a house, as a deliberate act of “deprivation of assets” by the parent with the intention of avoiding the payment of care homes fees and simply disregard the transfer when assessing the amount the parent should pay for their care.
b. The Local Authority will pay a limited amount towards care which could result in the parent being forced to live in a home they do not wish to live in or an area far removed from their social support network.
c. If the parent lives in the property, the gift will be regarded as a “Gift With Reservation of Benefit” (GROB) for Inheritance Tax purposes. The effect of this is that when the parent dies and their Estate is valued for Inheritance Tax purposes the value of the GROB is included in their Estate. It is therefore an ineffective method of mitigating any Inheritance Tax payable.
In short, it is a bad idea for their parents to part with their principal asset as that is the only source of independence they will have. To do so will mean they are entirely at the mercy of their child, child’s partner/spouse and their grandchildren.
4: The Uncertain Future
The course of life is unpredictable. Events occur that could never be anticipated and that could have a profound effect on any plans. We all know of instances of couples separating after long marriages, children dying before their parents or being made bankrupt. Each of these, and other similar life events, can lead to confusion.
a. If the child divorces or separates then they are likely to require money from the home to provide new homes for one of the separated parties. This will involve selling the shared home and an inevitable dispute will arise as to what share each of the parties will take out of the property.
b. If a child dies then the relationship is not between the parent and child but between the parent and an in-law or partner of the child. The parents’ responsibilities will be very different from that of their parental responsibility for their own child. (It is also not too far of a stretch to assume that the surviving spouse or partner will eventually meet a new partner.)
c. Inheritance Tax can have terrible consequences for these arrangements. Apart from the issue of a GROB, it will also be in their child’s Estate If their child is not married and has no children or does not leave their home to their children then the Inheritance Tax allowance is only £325,000. So that can cause Inheritance Tax to be paid on the house which again is money which has to be found.
d. If a child loses their job and their share of the house has been purchased with the aid of a mortgage, then everyone’s home is at risk if the child can no longer afford the mortgage payments. The house may well have to be sold.
e. If one of the parties involved in the sharing arrangement become bankrupt then their share of the house will become entangled in bankruptcy proceedings and will be available to settle the debts. This will, therefore, have a knock-on effect on the other owners or occupiers of the home.
5: Money
a: When the parents owned their own home, they had the ability to raise finance by entering into an Equity Release Mortgage. This is an arrangement whereby the owner of the home borrows money, using their home as security, but does not pay monthly interest. The interest is rolled up and repaid at the end of the mortgage when the house is sold. Owning a share in a house with their children removes that ability.
b. There is always the question of who pays for the repairs of a shared property. It is not unheard of that the child and their partner expect the parents to pay far more than their fair share of those expenses. This may be perfectly acceptable but it does raise an issue if the parent has more than one child and wants to provide for all their children equally.
c. How to deal with the parents’ share of the house on the parents’ death can be difficult. It is part of a child’s home so it might seem sensible to leave that share to the child co-owner, but if they have more than one child and would like to treat their children equally then money will need to be found from this share of the house to be paid to their other children. Is this a practical possibility?
These sorts of issues can cause significant ill feeling amongst all the parents’ children.
6: Conclusion
Whilst home-sharing arrangements can often be very successful, they can also be disastrous for those who have not thought clearly about the arrangements. There is no doubt it is often in the child’s interest, more than the parents’, to share a home. Negotiations are much more straightforward if the parent has significant bargaining power but if they give up their principal asset they will be losing most of their bargaining power. It is important to be clear that the proposals are in everybody’s interests rather than the interest of the child who may well be promoting the proposal of sharing a house and also clear what is expected by all concerned of the new arrangements.
When buying a house, advice is taken from a Conveyancer but the process of sharing a house is more complicated and it may well be that a Solicitor involved in other areas of the Law, particularly Trust and Inheritance Tax, should also be consulted.
If you are considering or need advice about intergenerational home-sharing, please contact us via the contact page or call us on 01305 771000
