Possibly starting all over again

[AliG]

Hi Everyone,

 

Just as we are finishing off my house, just a few things to do mainly landscaping, I am contemplating doing it all over again.

 

My parents moved to an apartment 6 months ago and it is lovely, but they just don't like living close to other people.

 

Meanwhile there is a piece of land for sale at the other end of the street to mine.

 

I am considering making an offer for it and building them a house.

 

Hopefully I could learn from mistakes that have been made on mine.

 

Stay tuned, I will know if I get it next week.

[ultramods]

What construction method would you go for this time?

[AliG]

My parents aren't getting any younger so I wouldn't want to take as long as our build has taken!

 

It might well be single storey and flat roofed depending on planning.

 

The heavyweight construction my house was dictated by having concrete upper floors, without this requirement I am very tempted by an MBC timber frame or SIPs.

 

The site has planning for a house that I do not particularly like, they appeared to try to get other things passed but I think had an eye to maximising development value, so we may be able to get something we prefer passed despite some planning constraints.

 

Just need to decide what to offer. The Edinburgh market has gone insane recently especially below about £600,000. Houses now regularly seem to be in the 350-400 per square foot range. Two years ago this was reserved for the highest end developments or best streets in the town.

 

I regularly see 30s bungalows or 50s detached houses priced in that range. I wouldn't touch them with a bargepole compared to something new, I nearly always look at them and want to tear them down. I noticed one the other day which very obviously had a vent right through the wall in every bedroom, presumably to deal with damp.

Edited October 3, 2018 by AliG

[vivienz]

What a lovely son you are.

[PeterW]

Obviously they will be building it @AliG ..... not just for VAT reclaim purposes ..... ?

[newhome]

I imagine parents living in a house may qualify for a vat reclaim? It’s a bit vague in that it says ‘for you or your family to live in’. Quite what constitutes family isn’t specified however. 

 

 

[joe90]

As @PeterW says, who is to know that they are not building it for themselves? Your just the project manager.

[Nickfromwales]

Timber frame is lighting fast. Turnkey ( from slab to rainproof shell ) is relatively stress free in comparison to you organising individual trades. Also one person for liability and warranty then too.

No brainer AFAIC.  

 

[AliG]

Actually I had mentioned to the lawyer I don't know if I should buy it or my parents should be buying. I would just be organising it. Hadn't thought of the VAT issue.,

 

Using a main contractor and with a lot less bespoke stuff than in my house most stuff will be zero rated, but it is definitely worth thinking about.

 

I guess I am in a different situation to most people, I can afford to retire and earn way more than I spend. In that situation I think I may as well make other people's lives better so frequently pay for things for family members and friends. I enjoy it and they do too. I even paid for my wife's friend's divorce lawyer when her husband hid all their money and she was at risking of losing her kids. I prefer direct action, to giving to unaccountable charities.

 

My parents are 71 and 72. Their health is fine and I'd like to hope they will be around for a few years yet. They could afford to buy the land and build the house, although they probably couldn't lay their hands on the cash next week to finance the plot. But they wouldn't know where to start to organise getting a house built. If I can make their life easier then I think its the right thing to do, I am sure most people would want to do the same if they could. 

 

 

[Cpd]

Great idea and keep us informed, I guess building something that will sell  easily when the time comes would also make sense.   I also have aging parents and though they are both well I am constantly eyeing up my land and thinking about where I could build a little house for them to live should they need or want to be closer in there final years. They may well be fine where they are but they love coming over hear and pottering about on my big old homestead 2-3 times a week.  mum in the gardens or out in the forest looking for mushrooms and my dad is still actively taking part in the construction of my many projects. The show stopper is he is struggling with the drive that is a 45 min journey, a ferry ride and then another 20 miniute drive in a Landrover. I intend to live here for ever and I want to make my living from this location so it could work well. 

[newhome]

If you buy the land won’t you by default own the house built upon it regardless of whether your parents pay for the house? Just something to bear in mind especially if you have siblings as these things can get messy. I would also just clarify with HMRC what is meant by the term ‘family’. I think it’s a great thing to do for them BTW! 

[Jeremy Harris]

There's always the option to buy the land then gift it.  No problem with that, AFAICS - inheritance tax liability for 7 years doesn't work backwards, does it?

[newhome]

19 minutes ago, JSHarris said:

There's always the option to buy the land then gift it.  No problem with that, AFAICS - inheritance tax liability for 7 years doesn't work backwards, does it?

 

But surely that asset would then become part of the parents’ estate thus increasing their inheritance tax liability?

[Jeremy Harris]

Sadly I don't think there's a way of dodging inheritance tax either way, is there?  The only difference is one of when the tax liability would arise. 

 

There's always the option of gifting the land, building the house on it, then them gifting it back again, but that still gives an inheritance tax liability for 7 years, I would guess.

[newhome]

Set up a trust? 

 

[lizzie]

4 hours ago, Nickfromwales said:

Timber frame is lighting fast. Turnkey ( from slab to rainproof shell ) is relatively stress free in comparison to you organising individual trades. Also one person for liability and warranty then too.

No brainer AFAIC.  

 

hmmmmm........not in my case LOL

[Ferdinand]

19 minutes ago, JSHarris said:

Sadly I don't think there's a way of dodging inheritance tax either way, is there?  The only difference is one of when the tax liability would arise. 

 

There's always the option of gifting the land, building the house on it, then them gifting it back again, but that still gives an inheritance tax liability for 7 years, I would guess.

 

What happens if it is structured as say a 25 year lease?

 

Does the house just turn into a theoretical pumpkin in 25 years and revert to the landowner at zero value? 

 

There are all sorts of assignments of benefit and 1%:99% ownership arrangements that can be made, but I am not au fait with them enough to comment reliably.

 

Ferdinand

Edited October 4, 2018 by Ferdinand

[vivienz]

I think the simplest way to do it is for everything to be in your parents' names so that they have the security of knowing that their home is really their own but you pay the bills. Once everything is done, tot up the costs and make note of it as an unsecured loan against their estate, with an agreed interest rate, repayable on second death. The security thing can be a big deal for anyone, but especially older people who no longer have the capacity to earn well if something goes wrong. It also protects them should you die first.

My brothers a I put a similar arrangement in place for our mum some years back but instead of having an interest rate, the amount to be repaid was expressed as a percentage of the property value as mum put a fair bit of her own money into the property.

[AliG]

I spoke to the lawyer today, she seemed pretty relaxed about whose name it was in. She said that the offer could be in my name, but we could register it in their name, or I could lend them the money etc.

 

The one thing she mentioned was the new nil rate band for property inheritance, TBH I hadn't checked to see if it applied in Scotland. This effectively allows a couple to leave £1m tax free

 

Thus as they can afford to buy the house it is probably better in their name.

 

As suggested it is always a funny situation to live in someone else's house, historically when we have discussed this kind of thing they have seemed a bit concerned, this time they seemed OK.

 

Some people mentioned trusts, I tried reading up on these a few years ago as I could never understand how people could use them to avoid tax. As far as I could figure out you cannot do that anymore. I did speak to an advisor last year and what he said was you can set up family companies with the shares passing from generation to generation as a way to avoid IHT. What he suggested though was that one of the main reasons was for family divorces and remarriage. You can structure a company so that the shares can only be owned by you and your direct descendants. Thus if for example you die and your spouse remarries your property doesn't end up being inherited by stepchildren. My parent's are worth enough to go to all of this hassle but it was quite interesting and I will have to do it for myself eventually. I just hate paperwork though.

 

I know many people do not like the idea of IHT as they believe the money has already been taxed. On the other hand I think helps to level the playing field otherwise the property owning part of the country will just keep getting richer relative to everyone else. What is unfair though is that organised people can avoid it. I am happy paying my taxes when I know that everyone else pays their fair share. It really upsets me to think that some people are totally at it.

 

I came up with an idea that IHT could be offset against the income tax you paid whilst alive. Thus if you had been at it and accumulated wealth without paying tax it would be caught when you died. Also if you had paid income tax you could leave your estate tax free, so as to not be double taxed, but if your kids then never worked it would be taxed when they died as they whole double taxation thing is only applicable to the first generation who earned the money.

 

Just spoke to my parents, they really like the idea of a small manageable new house. The key thing for them is though for it to still have a nice lounge etc. I am surprised that no one has spotted this niche in the market. There are a lot of nice apartments being sold to downsizes, but if you want a house with a nice big kitchen and lounge you often have to buy a 5 bedroom house.They only need 2 or 3 bedrooms, but a developer built 3 bedroom house often has tiny rooms.

 

 

[vivienz]

These days, trusts are more instruments of control rather than tax saving vehicles and they inevitably make life more complicated.

It's lovely that your parents are keen and that you can do this for them.

 

Your comments on the big lounge issue rings true with me. OH and I briefed the architect from the outset that we didn't want more rooms (3 bedrooms) but we did want much bigger rooms than our current place, and that's exactly what we have now.

Edited October 4, 2018 by vivienz

[AliG]

I will put in an offer next week. Sealed bids Scottish system, so no way of knowing if I am going to get it. There are two other interested parties.

 

[vivienz]

Fingers crossed for you.

[Alexphd1]

Good luck! 

[newhome]

12 minutes ago, AliG said:

The key thing for them is though for it to still have a nice lounge etc. I am surprised that no one has spotted this niche in the market. There are a lot of nice apartments being sold to downsizes, but if you want a house with a nice big kitchen and lounge you often have to buy a 5 bedroom house.They only need 2 or 3 bedrooms, but a developer built 3 bedroom house often has tiny rooms.

 

I think that's pretty accurate. I will downsize once I retire but I love the larger rooms in my current living space but I don't want or need 4 or 5 bedrooms, the problem being that if it's on 2 levels there is generally the same amount of space upstairs as down so that tends to convert into extra bedrooms. I guess the way round it is to look at a bungalow or something like @vivienz is building with less space upstairs. 

 

 

[Alexphd1]

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Edited October 4, 2018 by Alexphd1