Pension credit loan/gift from children to move house

Lilynearlake

My parents (68 and 74) are married, live together and on a pension credit since 2022. They live in their own accommodation in the UK (no mortgage). I would like to gift or lend them money so they can buy another accommodation that is slightly larger. Currently they have one bedroom but I would like them to have a 2 bedroom as due to health conditions they sleep separately so one of them sleep in the kitchen which is not ideal. 

 

So it will the following process:

 

1.    Parents sell their current one bedroom flat for “X”;

2.    I give them a gift or loan if “Y: (Y is circa 40% of X).;

3.    Parents buy a new flat for the price that is equal X plus Y (more expensive as it will be 2 bedroom rather than 1 bedroom) by using the sale proceeds from selling the existing flat (i.e. X) plus new money from me that is required to pay the difference (i.e. Y).

 

The end result is that my parents will have the same financial situation (i.e. no savings) other than having a larger and more expansive flat that will be their only residence.

 

What my parents would like to avoid is that due to some technical rules the fact that their child gave them money to purchase a more expansive apartment will stop their entitlement to pension credit. If that’s the case, we will not do this move of course.

 

Can you please advise if the gift or loan from a child to the parents that will be used solely to purchase a more expensive flat will affect the parents’ rights to pension credit following their purchase of the more expensive property. For the avoidance of doubt, the parents will not own two properties. Their existing property will be sold before they purchase the new property and the loan will only be made on the completion date for the new property.

 

Also is there any difference between a loan and gift and if there is any correct obvious advantage of using one gift over loan or vice versa. Also is there any limitation of the amount of Y (i.e. loan/gift) given the entire amount is used to purchase the house the flat they will live in?

poppy123456

It won’t affect their pension credit, assuming they won’t have the money in their bank account while they wait to purchase the new property. 

If the money is in their bank while they wait then there’s a £1/week deduction in pension credit for every £500 or part thereof over £10,000. There’s no maximum capital limit for pension credit. 

The home they live in is disregarded. 

Lilynearlake

Thanks! when you refer to money being in the account I assume you mean the loan money (Y). The reason I ask is because I was under impression that when sale proceeds (i.e. X) are sitting in an account and marked for purchase of new property for less than 26 weeks they are will not remove the right for pension credit. 

poppy123456

I didn't realise there would be a gap between selling their current home and buying another as you didn't mention that in your comment.

They will need to report the capital when it goes into their bank and it will be disregarded for up to 26 weeks, can be longer as they are intending on buying another property. 

What won't be disregarded is if you give them some money before they purchase the property. (if it's more than £10,000)