Granny Flat Interest

Hi,
has anyone used or know anyone that has used this when retiring?

@RolfLatham do you have any info on this? I would be interested in getting you to set it up for my mum if it is feasible. We are in the process of selling her home and she will move in with my brother (who owns his home)

Granny Flat Interest is where you pay for the right to live in a specific home for life. It doesn't need to be as granny flat.
This amount is then deducted from your assets, which reduces your total assets with the assets test.
Thanks.

 

You have to be careful of the potential CGT consequences to both the legal owner and the beneficiary.

 

Thanks Terry. It was you I meant to tag in the thread actually, not Rolf (Jetlag got me).
I did think about that. It would be a one off payment, not rent. My brother will most likely never sell the house, but of course we need to know. If it's feasible I would like you to draft up the contract plus a new will for mum, which will take into account the money transferred. Have you had any dealings with this before?

 

The CGT has nothing to do with whether rent is receive or not - this is a separate issue. Also even if there is no sale it can still trigger CGT for your brother if he is receiving money in return for granting a life interest

The granting of a life interest is a CGT event and so is disposing of one - if you mother gives it up for example.

There needs to be care taken if setting this up so that there is a right to reside and not a life interest or life estate.

 

Could be, but this is what should potentially be avoided because of the tax issues.
A life estate basically allows someone to deal with their interest in the property - sell it, mortgage it, etc. Although it might disappear on their death it still has a value.

A right to reside on the other hand has no real value because it can't be dealt with, it is just a personal right, so its value is pretty low or not nil.

 

Hi, it would be a right to reside only. The idea is to pay out the mortgage so my brother doesn't have to work fulltime and can look after my mum.
Would he have to pay tax on that? Is that what you mean by CGT? The Govt allows a "reasonable: amount to be deducted from her assets for this. If the value is deamed as pretty low does that mean the amount they would allow would be negligible?
Sounds like it's not worth the hassle.

 

If any rights are granted it would be a CGT event, but a mere right to reside is almost valueless so any CG would be very small or even nil.
the social security act allows for a sum of money to be paid over without it counting as a gift for social security purposes. But it can't be more than a certain amount and there is a formula for this which you should be able to find on google.
If the asset pool is already under the threshold for the full pension an alternative might be an interest free loan which would be cheaper and easier to set up and has potentially better estate planning consequences.