Council tax, probate & IHT

4richa4pora

Hi,

Some 15+ years ago my parents jointly decided to transfer their home over to me. This was done using a solicitor, and at my request things were arranged (in a written agreement) so that my parents had a right to live there rent free until the final one of them died. I also have a home of my own where I live with my wife and family.

I/we realised at the time that the transfer would probably count as a 'gift with reservation' for IHT purposes.

My final parent died recently, and as expected I now have to declare the 'gift with reservation' on IHT200.

My 'final parent to pass away' had been exempt from paying council tax for some time, so after their death I contacted the council tax department immediately to explain the new situation. ie the house stands unoccupied (but with parent's furniture) and is likely to do so for some time. I explained that I was in the process of applying for probate (interview next week) and that I was having to declare the house for IHT assessment as a gift with reservation.

I was amazed to be told that I would have to pay 90% of the full rate council tax from the day after my parent died (30days), and the bill arrived today. - Several £hundreds per month.

I therefore trawled the net for more info and found a PDF file (which you don't need to read)
http://www.local.odpm.gov.uk/finance/ctax/ctaxbillguide.pdf

On Page 16 of the PDF it states

Dwellings are exempt for a limited period if they are SNIP...........

QUOTE unoccupied dwellings which form part of the estate of a person who has died, for up to six months after the grant of probate or letters of administration. ENDQUOTE

It is my proposition that - as the house is counted as a 'gift with reservation' and is therefore included in my final parent's estate for IHT purposes I should not have to pay council tax on the property for up to six months after I obtain probate.

I welcome your opinions and advice. Thanks!

TonyMMM

I don' t think the house itself is part of any estate for probate purposes - you say yourself it was given to you 15 years ago ....there may be some IHT liabilty based on the value of the gift ...but you are the owner, and now that the property is unoccupied, you are due to pay the council tax, albeit with a small discount.

Alfie_E

Tony’s quite right. Probate and inheritance tax are almost completely separate. Although, you need to show there is no inheritance tax liability or that you have made arrangements to pay any liability before probate is normally granted. Property only forms part of an estate when title is being transferred under a will or the intestacy rules. You already owned the house, before your final parent died. Cold as it may sound, as far as the council are concerned, your tenant has died.

CLAPTON

sadly ... if you sell the property you are potentially liable for capital gains tax

ThinkBig_2

Hi 4richa4pora,

Can I get some advice from you as I am also trying to do a similar sort of thing.
My parents, who are quite elderly, want to sell their property (the value of which is well below the IHT level) as their property is very small and needs a lot of work done it and it does not have a downstairs toilet which they need desperately.
So after selling their house they want to transfer the sale proceeds to me after they have cleared their small mortgage (£5K). In return for transferring the money to me they will stay in my house which is in a very good condition and has a downstairs toilet. I will still retain the property in my name but will look to buy another house for my family which will be close to my current house so that I can continue to look after my parent's needs.

I am not doing this to avoid any tax as the transfer of money from my parents to me will be well below the inheritance tax threshold. But what I wanted to know to was how did you get the transfer done via your solicitor?

What was the process you used and how much did it all cost you?

After the transfer was done did you have to inform the council?

You mentioned that your parents stayed rent free, was thios agreed in a legal document? As one solicitor told me that it would be better to have a lifetime rental tenancy agreement setup for my parents. But I am not sure what is the right thing to do.
My dad is 82 years and does not want any financial commitments nor does he want to maintain a property. So by living in my house I would still look after the property and be close by to look after them.

Thanks.

4richa4pora

Hi Thinkbig,

First, I must say that I am not an expert on this, so you should DEFINITELY seek legal advice as there are/could be several implications.

I doubt that it would be easy to carry out the changes without using a solicitor, especially if you wish to protect against potential problems.

This is what we did though to get you thinking along the same lines.

1. We did use our solicitor, and my parents signed a 'deed of gift' for the property. You may need to consider stamp duty, land registry fees, etc etc.

2. My parents initially did not want an occupancy agreement, but I wanted them to have some protection, so had agreements created to guard against the possibilities of:

a. me predeceasing them and leaving them homeless - (a protecting codicil was attached to my will, and my wife and children agreed in writing that they would comply should this situation arise),

b. my marriage failing and leaving them homeless - (my wife and childrens' written agreements to a were also extended to cover b),

c. me possibly borrowing against the property to support a business, and then loosing the house if things went wrong,

d. my parents wishing to downsize again in their latter days but being 'locked in'.

You also need to consider that you may/will be liable to capital gains tax if you eventually sell premises which are not being used as your main home.

You should also be aware that when your parents die their executor/s will have to fill in an IHT form, and one of the questions on the 'shortform' asks if they have made significant gifts in the previous 7 (I think) years. If so, you then have to fill in a longer form IHT200 so that the authorities can do a more detailed IHT assessment. Depending on their assets, IHT should not really be a problem now for at least some married couples - as 'provided the first person to die does not use their IHT nil rate band' - they can now combine their IHT allowances giving a £600,000 nil rate band on the final death. This avoids the relatively messy setting up discretionary will trusts etc, which was the previous way around the problem.

Some people do decide to dispose of some of their assets eg their home, several years before they might need to move into care homes etc, to help offer at least some protection against the home being used to pay care fees. But if the authorities decide that you did this to avoid paying the fees, I believe they can now enforce payment.

The entire process cost over £1000 15 years ago, but with care home fees at their current levels, I think that you would probably save the cost of a solicitor's fees within a couple of months of residency in a care home.

Age Concern provide some excellent advice sheets online, which may help you/your parents in the future. Do take a look, I have found them very informative.
http://www.ageconcern.org.uk/AgeConcern/factsheets.asp

Yes - we did inform the council re: council tax etc, and it is important to make changes to house and contents insurance as your first home will be technically rented to your parents (not you) when you move to your new home.

Hope this helps!

Finally, I must say again that I am not an expert, so you should DEFINITELY seek legal advice as there are/could be several implications to some of the above.

ThinkBig_2

Hi 4richa4pora,

Many Thanks for your advice and the link to ageconcern.

I will be contacting a solicitor so that my parents are given proper advice.

localhero

Hi Thinkbig,

What you have in mind is in my opinion unnecessarily complicated and riddled with pitfalls.

What your parents essentially want to do is make a large gift to you now, but then to benefit from that gift by living in your house for a peppercorn rent.

This will mean that upon their death the value of the gift will be added back into their estates when assessing IHT. As their combined estates are below the IHT threshold this won't make much difference to the outcome in this area.

To protect your parents from you wanting to sell the property, or getting divorced or going bankrupt you will need to provide them with a legal agreement. That, and the deeds of gift all amount to a fair bill from a solicitor.

Then there's the issue of what happens if they wish to move or downsize.

More seriously, because you will still own the property your parents will occupy, you will face Capital Gains Tax on any increase in value.

The biggest potential problem will be if either of your parents require long term care. If it can be shown that their intention was to deprive themselves of assets to avoid paying for care, then the transaction will be ignored and they will be expected to pay for their care. As they are beneath the IHT threshold they can hardly argue that their motivation for the transaction was for tax reasons.

Most of these problems can be avoided I feel if your parents simply bought your house from you as tenants in common and made up to date Wills. If it is their intention to leave their estates to you, then obviously they can do so upon their deaths. In their Wills they can also quite legitimately safeguard the house (and other assets) by incorporating a property trust into them.

All of this will also avoid the services of a solicitor (who should have pointed out all of the above in any case). The wills can be drawn up quite cost effectively by a decent willwriter.

It is important to note that couples can legitimately safeguard their homes from care fees quite simply in their wills, but this estate planning must be carried out whilst they are both still alive, for once one of them has died it is usually too late.

4richa4pora

We wandered off track a little, but I thought I would just post to let people know how things worked out as it might benefit them. See the first post in this thread.

1. Council Tax - As the house was furnished I had to start paying council tax from the date of my father's death (at a slightly reduced rate).

2. Council Tax - I was initially told that if I required a six month council tax 'holiday' I would have to remove all property off the premises. I did not want to do this as it will be of use to my sons.

3. After I visited the Council Tax office in person, they agreed that I could move the property to a detached garage on the same plot. So it might be worth a 'face to face' if you find yourself in the same predicament.

4. Probate - Even though my parents had gifted me the property many years ago, this counted as a gift with reservation on IHT200, and had to be included at today's value for IHT/probate assessment.

CGT - Things are only just starting moving with this.
http://forums.moneysavingexpert.com/showthread.html?t=1133625&highlight=CGT+possible+house+sale