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Elderly parents and relatives needing care later in life can present challenges and be a significant responsibility for adult children, both emotionally and logistically. 

Adult children may understandably be hesitant about entrusting their parents or grandparents to care homes, or allowing a carer to move into their parents’ home, often preferring to oversee care themselves. 

Moving elderly relatives into the family home may be the answer for those who have the space to do so. This can offer numerous benefits including reduced care costs, allowing the relative to spend more time with and care for grandchildren, and giving adult children peace of mind regarding their parents’ safety. 

An increasingly popular alternative option is to build a small extension onto the family home – also known as a ‘granny annexe’ – which allows the elderly relative a degree of independence, by providing them with their own space.  As with all estate and family planning, this comes with significant legal and financial considerations and professional advice should be considered.

“Granny annexe”   
When buying a property with an existing granny annexe, a new owner may be able to claim a relief from stamp duty land tax that reduces the tax cost of buying the property.

However, it is not always easy to identify whether a property qualifies for multiple dwellings relief , as this is a highly factually-specific question and there are a number of different points to consider; the case law is not all consistent even where the facts are similar. Therefore, it is advisable to seek professional advice to ensure that the relief is correctly claimed and to understand the risk of it being reclaimed at a later stage, as the relief can be reduced or withdrawn if the number of dwellings decreases after completion.

If a purchaser is buying a house without an annexe, but has plans to build one, this would not be sufficient to claim MDR. It is also necessary to consider whether the 3 per cent “additional homes” SDLT surcharge applies if MDR is claimed. It is possible for MDR to be claimed even if that 3 per cent surcharge does not apply, but detailed advice should be sought on both points.

HMRC has litigated many cases in this area and a number of taxpayers have claimed MDR only to lose their appeal and be required to pay extra tax. HMRC issued a consultation document last year setting out various options to reform MDR but little progress seems to have been made to date. HMRC also reported that up to 40 per cent of amended returns claiming MDR may not actually qualify for the relief, on the basis of a sample of returns. 

For those seeking to extend the current family home or add an annexe, again there are a number of legal issues to consider such as planning law, building regulations, council tax implications, occupation rights and ownership issues, building costs and the ongoing costs of maintenance and utilities. Moving in with family can often work well but it is advisable for both adult children and elderly relatives to receive independent legal advice and draw up a formal agreement. 

The importance of difficult conversations 
Essential to planning ahead are sometimes difficult conversations surrounding property ownership and inheritance, before an agreement is signed. 

One option is for siblings to jointly purchase property, whether this be a new property or the parent’s existing home ahead of renovation. There may be inheritance tax implications where an elderly relative is to remain in occupation of their property following a transfer to other family members and tax advice should be sought. In addition, whenever family members purchase property together in this way, a deed of trust should be prepared setting out the various shares in the property, i.e. who owns what, and detailing any occupation rights. A clearly drafted document can help to minimise the likelihood of family disputes or uncertainty in the future, particularly in relation to what happens on the death of an elderly relative. 

Following the death of a parent, and during the grieving process, troubling disputes about inheritance and ownership of a property can create additional stress and tension for surviving family members. Although it may feel awkward to discuss these matters, it is mutually beneficial to establish a plan in advance, with clear terms setting out responsibilities, and to discuss this with your solicitor. 

This situation can also present an opportunity to consider tax planning as part of an effective wealth management plan and a chance to ensure that wills are in place and up to date.  

Whilst the concept of a much-loved relative requiring full-time care is emotionally trying, as is overturning personal living arrangements to accommodate their care, there are various options for children or carers to consider. This isn’t a case of one size fits all; different elderly care plans work for different families, and we encourage our clients to explore all options to find the one that best suits their family’s needs. 

No matter which structure is used, advance planning with specialist input where required will undoubtedly help to avoid legal disputes and unexpected tax bills further down the line.