Giving house from grandparents to grandchildren

Financialnumpty_2

Hello, my first post on here, and frankly I'm a bit lost.

Current scenario is that grandparents own a house which they do not live in, and rent out to tenants. They live in sheltered accomodation which they rent, and the income pays for the cost of the rent.

However, recent circumstances mean that they have considered with other members of the family how to move the property from them to their granddaughter. The father (son of grandparents) is an only child who has saved a great deal of money personally, is shortly retiring himself, and does not want/need the money from the property and wants to move the property to his daughter.

The plan would, in an ideal world, be that granddaughter moves into the grandparents house, and they give the house to her. No money will change hands most likely for the house, however granddaughter will pay the rent for the sheltered accomodation, or at least contribute to it.

Granddaughter currently owns small property worth approx £220K with mortgage etc on it, but will probably sell if this goes through ok, but may consider letting the property until the market recovers, unless that creates major issue trying to do this.

Grandparents house is worth approx £250K.

So, realistically I need to know who we can talk to about this, and what questions we should be asking. I have seen others on the wrong side of the tax man, and want to make sure that this transfer is done so as not to create stress and worry for the family.

For starters I guess some guidance on what Inheritance tax problems we could have, and what Capital Gains issues there might be, but these are both a dark art to me, never had dealings in this kind of thing before.

If it makes a difference, we expect that one grandparent will easily live another 10 years +, however the other is probably not going to live more than another 5 years at the current rate, several medical problems in recent years. I know there is something around the 7 year thing, but don't want to make a major transfer and then find a taxman asking for hundreds of thousands back whilst trying to sort out everything else if they should die.

Note this is not my family, but I am trying to help someone close to me who is in this position, and really need to find the facts on what the options are. If we can explain the options to father and grandparents in an easy to understand way, chances of everyone getting their head out of the sand much improved

Thanks in advance for all your help.

Jack.

silvercar

If a gift is made and the giver dies within 7 years, the gift is considered to be part of the estate (in diminishing percentages) for IHT. So you don't lose out by giving as without giving the property would still be in the estate. It maybe possible to transfer the property to the grandparent with the longer life expectancy before the gift is made.

On CGT, I need to know if the grand parents ever lived in the property as the principal residence before moving into sheltered accommodation. If so then their CGT liability is reduced considerably. If that is the case, post how long they owned the property and how long they lived in it and the gain made.

If they didn't live in the property ever then the CGT calculation is basically 18% of the gain, less buying and gifting costs, less any improvement costs, less two lots of CGT allowance (£10,100 currently) if not used elsewhere.

Financialnumpty_2

silvercar wrote: »

If a gift is made and the giver dies within 7 years, the gift is considered to be part of the estate (in diminishing percentages) for IHT. So you don't lose out by giving as without giving the property would still be in the estate. It maybe possible to transfer the property to the grandparent with the longer life expectancy before the gift is made.

On CGT, I need to know if the grand parents ever lived in the property as the principal residence before moving into sheltered accommodation. If so then their CGT liability is reduced considerably. If that is the case, post how long they owned the property and how long they lived in it and the gain made.

If they didn't live in the property ever then the CGT calculation is basically 18% of the gain, less buying and gifting costs, less any improvement costs, less two lots of CGT allowance (£10,100 currently) if not used elsewhere.

They owned and lived in the property ever since bought approx 15 years ago, up to March 08. Since then sheltered accom.

Not sure about the gain made, as they had the house built several years ago. Could find out how much it cost to buy land and build, and we have a good idea of current value as 12 months ago it was valued while we worked out what to do.

If we transfer from grandparents to granddaughter and one dies, as they only have half share of the house they won't hit IHT threshold, we don't think at the moment that the combined estate of both grandparents would hit the threshold - they have very little other than the house.

Jack.

neas

i thought inheritance tax was over 300k?

If the grandparents dont have much cash then so long as estate is less than 300k then it s/b ok.

If money is used to pay care home costs and the state arent involved. I.e i think its wrong for elderly people requring 24/7 care to 'give' their 300k property to kids.. so they are elligble for full costs of nurse home etc. Find it a lil cheeky.

But i dont think this is case.

silvercar

They owned and lived in the property ever since bought approx 15 years ago, up to March 08. Since then sheltered accom.

They are exempt from CGT for the time it was their main home and the last three years of ownership. They would aslo get letting relief and have their personal CGT allowances. SO there is no danger of a CGT bill if they transfer to their grand daughter in the next few years.

If we transfer from grandparents to granddaughter and one dies, as they only have half share of the house they won't hit IHT threshold, we don't think at the moment that the combined estate of both grandparents would hit the threshold - they have very little other than the house.

Recent changes in IHT mean that any unused IHT allowance passes to the spouse. So there should be no problems there.

I think the granddaughter would have to pay SDLT (stamp duty) based on current market value at the time of transfer.

tbs624

Financialnumpty wrote: »

....Current scenario is that grandparents own a house which they do not live in, and rent out to tenants. They live in sheltered accomodation which they rent, and the income pays for the cost of the rent.

However, recent circumstances mean that they have considered with other members of the family how to move the property from them to their granddaughter. .......
The plan would, in an ideal world, be that granddaughter moves into the grandparents house, and they give the house to her. No money will change hands most likely for the house, however granddaughter will pay the rent for the sheltered accomodation, or at least contribute to it..

In addition to any potential CGT/IHT issues, this family also need to check their position with regard to paying the grandparents' sheltered home rent and/or any future care home fees. You say that the grand-daughter will "at least contribute" but if the family is hoping that the tax payer will pick up the tab in the future, having passed this property to the GD, then they should be aware that disposal of a property in this manner would be taken into consideration in any financial assessment: it's comes under what's known as "deliberate deprivation of assets"

Their best bet is to make an appointment with a good solicitor who has specific experience in matters affecting the elderly: they could also try Age Concern/Help the Aged for general advice.

Financialnumpty_2

Thank you all for your help so far.

We have identified a couple of fairly pressing issues as we understand it:
Capital Gains - they have been out of property for 15 months, and need to sort transfer fast - we have discovered that the land has been owned by the grandparents for over 60 years, and the house built by them, and this seems like a real minefield if we have to get into the CGT calculations, let alone paying the potential tax bill! It seems only reasonable that they don't incur CGT on the house they have owned and lived in for many years, but the 3 year rule means this has to happen soon. So so glad we realised this now, as there were no plans to do anything for the next few years.

Stamp Duty - value of the property should be under £250K, especially in the current market, so 1% of this doesn't seem too punitive - that said if it comes in over £250K our understanding is this increases to minimum £7.5K. That's quite a lot of money to us.

Nursing home/Care home costs - is there a minimum time taken into consideration for this? Is there any way of knowing? We have no reason to expect them to need this kind of care for some years to come, but having seen the amount of money involved in paying nursing home fees first hand we need to make sure we are putting enough money away if we should cover this cost. Morally, I feel we should probably put money away to plan for this, however unsure as I can't find guidelines anywhere on this, does this vary from council to council?

IHT only an issue if the estate is over £325K - is this the current amount?

Obviously all of this is the in theory, before we get some decent and probably rather worth it financial advice from a professional!

silvercar

CGT - there is also letting relief worth upto 40k and each have a CGT allowance of £10,100. Even if a small proportion of the gain was taxeable, (a) the calculation isn't that difficult and (b) it would probably be a good few years of not living there before they would incur a tax bill.

Stamp duty, 1% under 250k and 3% for 250-500k. a big difference.

Care homes - I would guess the LA could look back 4-6 years. After that it would be hard to say they deliberately gave away assets just to avoid future fees; especially if they were healthy at the time of the gift.