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A granny annexe can be a fantastic option to transition an elderly relative from a larger home they may no longer feel able to manage. Annexes enable an older person to retain their independence and have their own space while being near to family for additional support. With property prices going up and the increasing costs of care homes and elderly facilities, multi-generational living is becoming more popular. In addition to the financial implications of housing, childcare prices continue to rise, and parents often work longer hours. Having parents living in the home means they can help with childcare while being close to their children.
The Valuation Office Agency stats show that there has been an increase of 16% in the number of granny annexes in England. However, you may not be aware of some of the implications of moving in together.
Here we take a look at our top things to consider when considering a Granny Annexe.
Unless you already own a home with a granny annexe or intend to build on your land, both parties will probably contribute funds when purchasing the new property. The way you share ownership is essential, and it will come with both financial and legal implications.
If you opt for a ‘joint tenancy’, where the property is owned in equal shares, then if/when one ‘tenant’ passes, their share of the property is divided equally with the other owners.
Another option is ‘tenants in common; this means that shares of the property can be unequal, and if one of the owners dies, their share will go to their chosen beneficiary.
The latter can often seem to be the more obvious option; however, consideration must be made for who inherits and how this impacts the living arrangement. If the beneficiary does not live in the home, will they want to move in or sell the house to gain their share?
Care Home Fees
While a granny annexe offers a perfect space for an elderly relative, this may not be a permanent solution. If the health of the older person deteriorates, they may need to move into a care home. Local authorities will consider a person’s assets when determining their eligibility for assistance or care costs. At this time, assets need to be below £23,250 in England (£28,500 in Scotland and £24,000 in Wales) before support will be given.
If the elderly relative owns property or even a portion of it, this value will be included when assessing their ability to afford care. It should be noted that local authorities can choose to disregard this property if, for example, a spouse of the older person lives in the property and is over the age of 60.
Getting the Mortgage
It may seem that getting a home loan when combining multiple resources would be easy, but this is not necessarily the case. If you need a mortgage to purchase some or all of the property, getting it could be more challenging. As a general rule, lenders avoid providing a mortgage to buy part of a property because, in the event of non-payment, they cannot repossess or sell the home if someone else owns the rest. In addition, many lenders are reluctant to provide a mortgage for anyone past the age of retirement.
For an older person, selling up and moving in with adult children can have some additional benefits for IHT (inheritance tax). This is because it can reduce the value of your estate, which means there is less tax liability. However, this could go the other way – if the older family member gifts money from their house sale, then the seven-year rule becomes applicable.
It makes clear financial sense that all property owners should apply for a Lasting Power of Attorney (LPA) to ensure that all of the financial obligations are still met should their health change. An LPA allows someone to appoint other people to make decisions for them should they become unable to do so. Remember that if an elderly parent moves into the granny annexe of their daughter’s property and also gives that daughter the Power of Attorney – this could create a complicated situation. The daughter would be unable to gift herself money, nor can she use the parent money to make, even necessary, improvements to the home. We recommend you seek professional advice to help understand the legalities of a situation such as this.
Set Clear Boundaries
Talking about money might not be easy, but it is imperative to sit down and have an honest discussion about the expectations of all parties. Who will cover the utilities? How will the food be purchased? Who is responsible for household chores? If the elderly relative is providing some childcare, does that offset other things they would have paid?
Moving your parent or other older relative into a granny annexe can be a wonderfully rewarding thing. Allowing them to be close and present for grandchildren as they grow up, receiving support from their children to retain their independence and feeling safer than they would rattling around in a large home following the passing of a spouse are just a few reasons. Take the time to consider the financial implications and enjoy having a large family unit together.
If you’re ready to take the plunge you can explore some of the annexes available here.