The Pitfalls of Multi-Generational Living

By Mike Wragg

Take one house, bought 15 years ago by David and Claire when their girls were just off to senior school and Claire’s parents lived nearby to help with childcare.

Fast forward to now, with university done and dusted, elder daughter Sophie lives and works in Europe, but 22-year-old Rebecca has just arrived back home with a degree in hand and is struggling to find anywhere to rent, let alone buy.

In the meantime, Claire’s parents have become frailer and, after talking at length, it was decided they would sell their house and use the money to build a ‘granny flat’ in Claire and David’s back garden. It means Claire can keep an eye on them, while they still live as independently as possible.

Welcome to the world of multi-generational living.

For a variety of reasons, not least the rising cost of property – especially in and around London – more and more British households now have three or more generations living together under one roof. It’s a trend which continues to rise and has seen an estimated 30% increase in the past decade.

The so-called ‘boomerang kids’ are unable to afford, or find, somewhere reasonable to live, while elderly parents are living longer and often need more care.

If money allows or the older generation has a property to sell, then pooling resources and moving in together, or sometimes selling two smaller houses and buying one bigger one, can be a practical solution.

However, decisions aren’t to be taken lightly, because while there are many advantages, there are also pitfalls:

• If Claire’s parents eventually need more structured care or nursing, the local authority could take a dim view of the fact they had invested all their money in a property with no means of releasing the equity to contribute towards the fees. In theory, they could take a charge over the family home to recover the money such time as it is sold.
• If David and Claire’s marriage runs into difficulty and they split up, the likelihood is the house will have to be sold and her parents could become effectively homeless, without any equity of their own as they invested in the ‘granny flat’.
• If David has to relocate for work reasons, then the in-laws will have to move too – not easy to uproot them again as they get older.
• Even worse, if David runs his own business and runs into financial difficulty, the whole house could be sold in order to meet creditors’ bills.

And of course, there are Claire’s two brothers – while being grateful their parents are being looked after, they may be less keen on seeing their inheritance whittled away by investing in an extension which added long term value to their sister’s property.

It means once their parents pass away, they might have to wait a very long time – until Claire and David decide to sell the house – to recoup what is effectively theirs, and it could also have inheritance tax implications for all the family.

It’s not just about the grandparents however. Claire and David also spent money converting their garage into an additional living area for Rebecca, with the net result that her friends seemed to have moved in almost permanently and the monthly rent is less frequent than it could be.

With little incentive to try and save money while she has all her meals provided and a comfortable place to live, Rebecca could also be in for a shock if her parents decide to move for whatever reason. While she may complain at being uprooted, the point is that she is still a ‘child’ – albeit an older one – living at home and she has to go along with her parents’ plans.

Some parents may be fortunate enough to be able to give their adult children help to get onto the housing ladder in the form of a gift or loan, and if so, it’s important to get this documented to avoid future confusion. Professional advisers can explain how this can be done in the most tax efficient way.

And, in David and Claire’s case, if they lend Rebecca money to move out, then Sophie could demand her share as well.

All these scenarios show that for families who are thinking of playing their very own generation game, the secret is to take both legal and independent financial advice and ensure everyone understands the future implications of what they are about to do.

Plans that were made with the best of intentions can go wrong when circumstances change and it’s important to put safeguards in place so everyone understands where the money has gone and who owns, or has shares in, the property.

Mike Wragg is an associate in the residential property team at Buckinghamshire law firm B P Collins LLP. To find out more about B P Collins, visit www.bpcollins.co.uk