IHT: house gift with reservation - a legal dodge?

robpitt

Would the following be a legal dodge...

• Give away half of a property and then obtain equity release and use the released capital to pay market rent for the half given away.

OR better yet

• Give away half and pay market rent from savings until savings are nearly depleted, then if necessary, after a few years sell a further quarter (to the same recipient) as a means to raise cash and continue paying rent.

The first I believe would be legitimate, the 2nd sounds like a dodge but you could argue in principal that it's the same thing. In both cases the donor is
committed to paying for the benefit they continue to enjoy.

robpitt

PS
An even more dodgy variation of 2nd might be for the donor to fail to pay rent he's contractually olbiged to pay, thus running up arrears, arrears would eventually be paid from cash raised by selling a portion of the house.

Again one could argue that in all scenarios the donor is comitted to paying for the benefit they continue to enjoy.

robpitt

Sorry for the deluge but heres another thought ...

if recipient lives (lodges) in the house with the original donor, is the requirement to pay rent mitigated asthey would both then be paying rent to each other in respect of the portion they don't own.

CLAPTON

have you done the sums?

what sort of sum would an equity release company give on half a house that would be difficult to sell?.... you would probably loss a huge value of the house.

the recipient of the rent would pay tax on the rent

if the recipient isn't living in the house then there may be a CGT liability

what if you wanted to move in a few years time and prices had gone up

how much IHT are you trying to avoid? remember the conservatives are promising £1M IHT allowance

sdooley

Most of these people wanting to dodge IHT will end up with a bigger bill once you add up income tax on the rent, capital gains tax on the sale of the house and the extortionate charges of the equity release companies. Plus if the child goes bankrupt the parent loses their house.