2nd Property - Buy to Let query

Clt and ptr both on CA and Clt on ESAir.  They own their home. Daughter is late 20s, receives PIP DL Std: she is working but has some vulnerabilities.  She wants to marry: husband will be from abroad.

Clt would like daughter and son-in-law to be living close enough to family home so they can maintain some parental support, so they are looking into a Buy to Let. They think they can raise enough deposit from their own resources, with help from their extended family, and possibly from daughter’s wedding gifted monies.  They say the rent collected from daughter will cover the mortgage payments.  But would their ESAir be safe?

I haven’t looked at anything like this for many years (buy-to-let used to be allowed with miniscule deposits) and am struggling to work out how such an accumulated deposit would be treated for capital purposes by DWP. 

Surely it would have to be amassed in an account in their names and would breach £16k threshold?

If the deposit issue could be worked around, would the plan be viable?

If the 2nd property were occupied by daughter on PIP, but not with LCW or LCWRA, would the disability benefit alone be sufficient to count as “incapacitated”? And thus 2nd prop be disregarded?  - I can’t find PIP on the required benefits list on the old DMG.

Clt is early 50s so, when managed migration comes around, would the position still fit?  ADM defines “incapacity” for the purposes of applying a disregard to the 2nd property as being iro LCW.

I’ve been going round in circles with this for a few days now, and I’m really not convinced that we wouldn’t be down at the first hurdle!  Any thoughts/input would be much appreciated.

Elaine

Have they checked that they can actually get a BTL in these circumstances? There is invariably a condition of the mortgage that you can’t let to close family and I would have thought their income would also be considered.

Insofar as they are accumulating their own money for the deposit, this would not be disregarded. However funds from other friends/family could be dealt with either by being paid over very shortly before the purchase or directly to the conveyancer. Alternatively, if it was made sufficiently clear that the funds were paid over exclusively for the purposes of funding the purchase and were to be returned if the purchase failed, then a Quistclose trust would arise and they would not come into consideration at all.

As to the capital value of the home, the disregard for ESA requires that the relative is “incapacitated” whereas the disregard for UC requires that the relative “has LCW”. Whether the claimant is incapacitated is a question of fact for the DM but will take account of benefits they receive. Those benefits are not necessarily “required”. I would think too that given that the list includes DLA and AA, it is probably supposed to include PIP but it probably hasn’t been updated in 10 years. There would be a risk that the DM would conclude that the daughter is not “incapacitated” by reference in particular to the fact that she is in work.

On the equivalent UC disregard, there is an interesting question as to whether someone can “have LCW” for the purposes of schedule 10 without having been assessed as having it on a UC or ESA claim. I think the answer is probably that they can, but it could certainly be an issue and the daughter would still need to score 15 points on the assessment. There would be no transitional protection regarding capital on moving over under managed migration as this only applies to tax credits claimants.

There is also going to be an issue if the daughter ever does end up claiming UC as the rent is very likely going to be considered non-commercial given that the property has been purchased exclusively for her benefit and that the arrangement is only tenable whilst she specifically is living there so as to engage the disregard.

So there are a lot of things about the plan which raise an eyebrow. Often the issue in advising people on this sort of thing in advance is that whilst you can say what the law says, there is no way of getting an authoritative view from the DWP as to how they would treat the various transactions until after they have occurred. By that point, they have bought the house and it is too late. So I tend to find that once you explain all the risks to someone, they decide against proceeding.

(Isn’t there also another possibility here of just having the relatives etc. hand over the money to the daughter directly so that she can just buy the house herself, avoiding all the thorny benefit issues and getting a lower interest rate as a residential purchaser?)

Thanks Elliot.
I’ve spoken with them this evening and explained the pitfalls..  It will be many months away yet, I think, and they may think differently by then.

Thanx
Elaine