stooH

Early Inheritance & Interest Free Mortgages

22 posts in this topic

Sorry, another lengthy post but a horribly complicated situation. If anyone makes it to the end advice/suggestions appreciated...

 

My gran lives in a nice 3 bedroom semi and is about to move into sheltered accommodation. I mentioned in another thread about all the work my grandad put into the house and it seems that neither my gran or my mum want to sell the house on. So they've come up with a solution!

 

One of my three brothers rents a 2 bedroom terrace and they've decided that they're going to let him move in to the house. I'm genuinely overjoyed at this, they've got a young son, they'll be really local to us and it will be great to see them get their first proper house.

 

The way it was described to me was "we're not really helping them too much financially" they're going to get it valued and fix that valuation in now, my brother will then effectively pay rent to my gran (and as/when she passes on it will then go to my mum) for a couple of years. This will effectively be a deposit on the house and then in a couple of years they'll take out a mortgage and buy it properly it for the pre-agreed price (minus the 'deposit'). I was fairly happy with that, yes it will be quite a bit of help to them but it will allow them to get established.

 

I did have a few concerns about it, like the fact that i'm not sure he can actually afford the house, even if they could scrape together the amount for the mortgage in a couple of years he then has to consider the huge step up in general costs from a rented terraced house to owning your own semi (all the service costs go up, council tax, repairs, decoration etc).

 

I raised the concerns with my mum at which point she started getting very flustered and going on about how we'd benefited when we got married from a wedding gift from the in-laws, seemingly completely ignoring the savings of our own we'd put into buy our own house and the work that i've put in over the years to get where I am and be able to buy a nice house like we've now got. 

 

The story then started to change... she said that giving them a 25 year interest free mortgage was no big deal.... It seems that what she's actually going to be doing is when she inherits the house she'll let them continue to live there for the same ongoing rent and eventually the house will be theirs. All they have to do is pay back the agreed value of the house, no interest. 

 

I was gobsmacked. She seems to have no comprehension of compound interest, she thinks this is just a little thing she's giving them. I'm one of 4 brothers, and there doesn't seem to be any particular willingness to help out any of the others in the same way, one of the others might get the proceeds of the sale of contents of the house to help them out a bit, wow probably a couple of grand. Just shocked by the situation, I genuinely thing it has the potential to tear the family apart. Unfortunately my mother doesn't see this and seems impervious to wanting to talk it through sensibly.

 

It's very hard to put in to words, i'm not after the money, really not, but there just seems to be a huge fairness discrepancy.

 

I also fear that there is the potential for all kinds of inheritance issues, maybe taxation because of the way it's being structured??

 

I obviously need to talk to my brothers and clarify what his understanding of it is but don't want it to come across as sticking my nose into 'his business' or ruin our relationship. It's going to be a right sh!tty conversation to have...

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Ouch.  Sibling jealousy, unequal treatment,... Can. Of. Worms.

 

I really don't want to inflame a situation like this, but yes - you're right that it's a big thing.  Over the term of a 25 year mortgage at (say) 6%, you'll pay about the same as the original capital amount in interest.  So she's effectively giving him the house at nearly half price. 

 

Do tread carefully though, these things can be very divisive.  I'd try to make it a thing about her not realising how big this concession is, rather than "why are you being so unfair".

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The argument went along in both directions, I tried pointing out to her how much interest you pay in your monthly mortgage repayments, especially in the early years and also tried to point out that it was particularly unfair on one of my brothers who has just had a kid and rents a small flat.

 

I got the response "They couldn't afford to pay the monthly amount so it's not an option. What do you want me to do, sell the house?"

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That aside, and not wanting to wish your gran away (for want of a better term), will there be any inheritance tax to pay on the house when your mum inherits it? Can she afford to pay that separately without having to sell the house.  What about transferring the house into your mum's name now?

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I don't envy you this situation at all, by the way.

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I don't envy you this situation at all, by the way.

 

+1!

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That aside, and not wanting to wish your gran away (for want of a better term), will there be any inheritance tax to pay on the house when your mum inherits it? Can she afford to pay that separately without having to sell the house.  What about transferring the house into your mum's name now?

 

I think the inheritance tax probably won't be an issue, whats the limit now 325k per person and my gran would have my grandads amount added to that, I very much doubt her estate will get anywhere near that. However, it does get complicated in that my mum has a sister. What if the value of the house is more than the value of my mum's share? I presume that would at least force the matter in that the house would have to be officially sold to my brother.

 

What if my aunt doesn't like the arrangement as it locks in the value of the house now rather than it being rented out and the value continuing to rise. What if she kicks up a stink about her kid (another grandchild) who's not benefiting in any way. The possibilities for grief are endless...

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Oh dear.

Not nice.

Just throw some random questions that popped into my head as I read this:

Why this brother and not the other one who sounds like he is in a similar position?

Do the other 2 brothers know?

Is the 4th brother also financially stable as you?

It almost seems like selling and even if it was split so the more needy were the ones assisted is the fairer way to go?

Do you brothers all get on well enough to consider going for a pint to talk it through?

 

I have seen this with some of my uncles and also in one of my BiL's family and one situation involved knives pulled and police called the night before the funeral: ie not good!

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I have been in the same situation. My gran died with house paid off and a considerable amount of money in the bank and even more in a tin in the cupboard. I walked away the second a feud started. I literally disconnected myself from the entire situation. It was the worst decision ever financially but by far the best for my mental health! I'm sorry to say this but experience tells me you have absolutely no way of winning this and you're better off simply walking away.

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Yeah I was sort of hinting towards that too - let the 2 renters with young children sort it between them - with maybe you getting to take some items from the house of sentimental value?

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I'd be asking what the terms of inheritance on your Mums estate will be.

If say there's 3 of you and the plan is equal diversion then something needs to be amended.

As for the grace and favour property, I'd have no issue with that. Let the tenant improve the place, maintain it and hopefully the values will rise.

The real crux seems to be when the owner in due course (your Mum) passes.

Some level of agreement should be sorted. I'd suggest looking at the value of the Grans property now as a stick in the ground.

Say it's £200k, and becomes £400k. I'd be suggesting that other estate items are ring fenced within a will to insure even and fair portioning of the whole estate.

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Personally it wouldn't be an issue for me, what financial arrangement my parents have with my siblings is entirely none of my business.

And if I had any arrangements with my parents (which I have in the past) they would be no one else's business, family or not.

I'm not interested in any inheritance, I've told my parents to spunk it all, I'd rather see them enjoy themselves in their retirement than try and save it all for us, but I don't begrudge it to my siblings at all, I know they'll leave an equal portion of whatever is left to us all but I really don't want it.

These are the sort of things that can divide families, hence why it shouldn't be common knowledge what arrangements each sibling has with parents, especially while they are still alive, so long as what's left when they go is divided fairly I don't see it as an issue.

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I know full well my parents will leave me and my sister 50% each.

They have 3 houses of differing sizes, but the relationship my sister and I have I know if somehow it wasnt split farely the "losing" party would recompense the other to make it equal.

We thankfully are a family where money isn't as important as each other.

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And this is what concerns me, a number of people are taking it that "I want" and that's not what it is. If it was how it had been explained to me initially I don't have an issue with them getting a boost that I never got from my parents, i'm far enough along now that I don't need it. However, when it comes to this scale of benefit and it going to one son who's worked all his life and got to a reasonable level but just never done the saving thing, i'm utterly perplexed.

 

And I know that eventually it's going to start an absolute sh!t storm. I'm trying to head it off at the pass.

 

Realistically the inheritance from my mother will be 15/20/30 years down the line and i'll have absolutely no need for it, i'll in all likelihood just pass it onto my kids (plural!).

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Personally it wouldn't be an issue for me, what financial arrangement my parents have with my siblings is entirely none of my business.

And if I had any arrangements with my parents (which I have in the past) they would be no one else's business.

This.

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What's the situation with the sheltered accommodation?

Is there no call on your grans assets to pay for her care fees?

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I think the important bit here, is that fact that your mum has a sister, and so you really need to know how your gran's estate will be split in the first place.

 

 

Once that has been 'agreed', only then can your mum sort out the house.  With the help of a financially aware solicitor!

Do all 4 of you get on? (you and your brothers)

 

 

Good luck.  You WILL need it.

 

 

Personally, as Mr T has put it, if my m & d help my brothers - that's great, I don't really care as it's good news.  They've helped me, they'll help any of us if we need it and that's what family is about.

Edited by cruiser647

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I know full well my parents will leave me and my sister 50% each.

They have 3 houses of differing sizes, but the relationship my sister and I have I know if somehow it wasnt split farely the "losing" party would recompense the other to make it equal.

 

 

I'm extremely fortunate to be in the same position.

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Both of my parents are long gone.  In respect of monies from their "Estate", there was nothing.  This was due to my Mum dying many years ago and my Father selling the house and proceeding to drink all the proceeds - until he died.

 

Because of that I've never had any such issues.  Even when his life insurance paid out I was offered a sum of money from it via the insurers but declined it.  It wasn't a huge amount, but it would have bought a very nice car.  I honestly didn't want to touch it.  Why would I?  It was money from a stranger.

 

But...

 

The situation stooH finds himself in would get to me.  Not financially, but the ethics of it.  I can see absolutely why he's annoyed, concerned and wanting to know what the implications are.  His Mum might find herself faced with all manner of issues, or his brother, if HMRC took issue with it.  It is also financially unfair - whether it has anything to do with him or not. 

I don't have an answer for any of it though.  I'd just feel similar to him.

Edited by NewNiceMrMe
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It's one that you pay a rent to each month so no issue with means testing, but the sale (or now 'rental') of the property will be covering that.

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