UK Property Law
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You say that your mother in law is starting to suffer from serious dementia. Is she still compos mentis or has her dementia gone too far for her to be able to handle her own affairs? If she is still capable of making decisions, has she signed a Lasting Power of Attorney appointing somebody to handle her affairs should her mental capacity deteriorate?
Should you decide to sell your house and fund the cost of building an extension to mother in law's house, you could protect your investment by arranging for her to transfer a proportion of the value of the property to you and to your wife so that you become joint owners with her as tenants in common. That would protect your position on her death in that you would then only need to buy out the older brother's share on mother in law's death, and then your daughter's interest in the property once they are ready to leave the property.
So far as tax is concerned, your proposal should not affect the Inheritance tax position on mother in law's death if you become joint owners with her. Only the value of her share in the property will be included in her estate, and if you arrange the ownership proportions correctly, that should not increase. There will be no capital gains tax as the property will be in owner occupation so that the exemption applies.
The arrangement will only work if mother in law has sufficient mental capacity to understand the arrangement and to sign the necessary documents after taking her own independent legal advice. If she is not able to do this, you will be in some difficulty.
Hi Thanks for the advice,
My brother in law believes he has Enduring Powers of Attorney but has not envoked them as yet. Should he do it now that his mum is non compos mentis and does it mean he could arrange to have a proportion of the value transferred to my wife and myself and if so is it a lengthy procedure?
If your brother in law has an Enduring Power of Attorney he ought to register it with the Office of the Public Guardian now, as mother in law is no longer compos mentis. Once registered he would be able to act for her in transferring ownership of a proportion of her property to you. The process is not complicated, but it needs to be done carefully and with the full knowledge and agreement of all of the beneficiaries to mother's Will. There should be no element of gift by mother in law, other than what is already in her Will. If there were to be an element of gift, your brother in law would need the consent of the Court of Protection to making the gift.