‘Hotel of Mum and Dad’: legal issues explained
A study from The Institute of Fiscal Studies (IFS) found that the proportion of adults in the UK in their 20s and 30s living with their parents (“co-residing”) has risen by more than a third over the last two decades. An estimated 1.7 million adults in the UK aged 24 to 34 are living with parents, an increase of 450,000 since 2006.
Lower rates of parenthood and marriage were also reported. The average age of first-time mothers has been increasing since 1970, and the average age at first marriage has also risen over time. This suggests young people are delaying living independently.
Co-residing has been attributed to various factors. Rising house prices and rents are making it more difficult to live independently. It is estimated that average property prices in England have doubled over the past 20 years (with London and the South-East seeing disproportionately high increases), compared with an average rise in income for 25 to 34 year-olds of around 30% over the same period. Only about 10% of this age group are homeowners. Meanwhile, rents are increasing too, especially in London, where the average rent is in the region of £1,000 a month.
The IFS study reported that adults are more likely to be co-residing with parents in areas where housing is less affordable. Having children living at home is particularly common in London and those areas that have seen high house growth since 2006.
Studies suggest that the post-Covid surge in the number of young adults with mental health and other health-related issues also accounts for some of the increase in co-residing numbers.
The comfort of the family home is appealing for young adults returning after university, relationship breakups, or other life challenges. It offers an opportunity to save by paying no, or heavily reduced rent, as well as saving on other household costs. Young adults living at home can ‘hold out’ for a better job, spending more time unemployed or at lower-paying jobs searching for a higher-quality or better-fitting roles.
A lot of parents are happy to help ease the pressure as their children find their feet in the world but what if they never check out of the “Hotel of Mum and Dad?” Parents may be comforted by data that shows that while 43% of 25 year olds live at home, this falls to 9% for 34-year-olds. However, studies have also suggested that co-residence over the first 10 years of adulthood is likely to be permanent. This could require a review of wills, estate planning and expectations for parents and their children.
How can I plan for what happens to the home on my death?
Whether as parents you are happy with co-residence or not, what happens in the event of your death? What happens to your child living at home?
Many parents want to treat their children equally in their will. But what if one child is living independently, perhaps married with children or working in a successful career and building their own wealth, whereas your other child is still living at home with no sign of moving out? How do you provide for this in your will? A lot of parents who want to treat their children equally find it difficult to achieve this. They worry for the child who may lose their home on their death, but if the goal was always to treat the children the same, how do you achieve this, and does it even make sense when one child is better off than the other?
When creating a will if a child lives at home, you have several options to consider.
Outright gift of property
This may seem like the obvious solution but unless you have other assets to leave between your other children you may not achieve equality. With the home likely being the largest asset by a great degree, you may not even come close to fairness or parity if you gift it to only one of your children and then attempt to balance things out with other assets.
Create a trust that gives the child the right to live there after your death
A trust in your will could allow your child to live in the house for the rest of their life, until they move out, or for a specific period of time while they find their feet and make alternative arrangements. Specific conditions regarding responsibilities for maintenance, insurance, its use and distribution of sale proceeds can be included.
This can be a good option if the other child or children are able to wait for their share, or perhaps are even happy for it to pass to their own children at a much later stage when their sibling no longer needs the property. There are other considerations, including how any tax due will be paid if the house can’t be sold to provide liquidity.
Lifetime gifting – an inheritance tax (IHT) planning opportunity?
A lifetime gift could help your children make a start to independence. It could also potentially reduce your estate’s IHT bill on death.
If you make a lifetime gift to one child, your will can be drafted so that this gift is taken into account in the final distribution of your estate to achieve equality between your children. You would still need to give careful thought on the impact of this gift during your lifetime, including possible tax consequences if you die within 7 years of making it.
How can I “futureproof” the home during my lifetime?
We are often told to “expect the unexpected”, as life is full of surprises and uncertainties. Without proper forethought and planning, significant life events such as divorce, bankruptcy and family breakdown can put parents, children and their home at risk.
What happens to children co-residing in the home if I get divorced?
Parents going through a divorce will need to decide how to divide their finances to achieve fairness. The first consideration of the court will be to make sure that any minor children (under the age of 18) are suitably housed. There is, however, no strict “need” to provide housing for adult children. The court could order that the sale of the family home, even if an adult child is living there.
Shall I gift the home to my child during my lifetime?
Outright gifts of the family home are potentially fraught with difficulties. This is the case whether you are gifting all or part of the property. An effective gift of the home (or share of the home) to a child will mean they become a legal and beneficial owner, and can then make decisions about the home, including who lives there. The home cannot be sold without their consent and there are likely to be tax implications at the point the gift is made. If a married child gets divorced, , the home could even be transferred to their spouse or sold as part of the financial settlement.
If you transfer the legal title of the home to your child, but continue to live there and treat the home as your own, then you may fall foul of the ‘reservation of benefit rules’ for IHT and you would need to take specialist advice.
What will happen to your house if you go to a care home?
As parents get older, they may worry about what will happen if they need to move into a care home. Will their house have to be sold to pay for care, and what will their children’s position be if that is still their home? It is essential to understand how care funding works in situations where an adult child is living at home.
As the number of adults living with their parents increases, the question of how or whether to give a resident child an interest in the family home and how to achieve equality between children will commonly be asked. Careful consideration and legal advice are essential to protect your position and avoid future complications, sibling disagreements and expense to your estate.
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