According to a report by Lloyds Banking Group, multi-generational households are becoming more common. That’s in part due to the recession, but also because the number of elderly people is “rising sharply”, says Ali Hussain in The Times. But families should be aware of the financial pitfalls.
Say you build a granny annexe. To avoid capital gains tax on a proportion of your main home when you sell it, you need to prove that the annexe was not a “separate unit”. You can usually do this by having an internal connecting door. This may be better than selling your home and your parents’ to buy a bigger one because anything they contribute may be subject to inheritance tax.
Moving into your parents’ house may not be the answer either. If a parent later moves to a care home, the council can put a charge on the house allowing them to sell it and recover care costs after death.
One solution is for parents to put their house into joint ownership and set up a trust for the children on the first death; the council “might only be able to get its hands on half the property”.