inheritance tax

rick59

My mother has a 600,000 pound house and no other assets to speak of
in november 2002 she transferred the ownership of the house into three equal parts to herself her son and her daughter at which point the house was valued at about 550,000 therefore her estate is only worth about 200,000
not subjesct to inheritance tax she lives in the house still the son and daughter have thier own houses presuming she lives on until a ripoe old age
will this be accepted by the inland revenue.

answers on a post card please

jenniferpa

Not necessarily. This seems to fall into the class of "gift with reservation". I'm assuming she's not paying rent for this house. If she's not, I believe that it is as if she had not made the gift at all and the total value will be included in her estate at death. Perhaps others can give you more details.

Jennifer

Batfink

Jennifer is correct, from the Inland Revenue website:

"If you make a gift with strings attached (technically known as a ‘gift with reservation of benefit’), it will still count as part of your estate, no matter how long you live after making it. For example, if you give your house to your children and carry on living there without paying them a full commercial rent, the value of your house will still be liable for Inheritance Tax."

Obviously the rent on a house of that value will be high - they'd expect close to £5,000 a month based on the 10 year rule - which would also be subject to income tax payable by the children.

Phil

MrChips

I don't know anything about this so please shoot me down but....

...if she still owns a third of the house, can't she just claim to use a third of it? Not sure how this would work in practice. In the extreme, could the house be split into separate sections (rather like some big houses are split in half and rented out separately as upstairs and downstairs)?

I'm not suggesting this is a viable option in this case, just interested in how the system works.

Alternatively I assume she would only have to pay 2/3 market rent for this not to classify as a gift with reservation?

jenniferpa

I don't think this would work. The code talks about any reservations or strings attached, and unless 2/3 of the property was sufficiently separate it could be sold I think it would still be considered part of the estate. Don't know about the 2/3 rent though - that would seem reasonable but is the Inland Revenue reasonable?

Jennifer

exil

In the circumstances, is there any point in the parent retaining the 1/3 share? The options would seem to be

- keep hold of the house until death
- transfer the house and pay rent (50% to each)

Another glitch - if the house is transferred before death, then CGT comes into the picture as well!

rick59

wow thank you people this doesnt look like its going to work any ideas of what can be done one springs to my mind transfer it back sell it and spend the money but unfortunatly the lady likes living there

Cook_County

Even if not caught by the GWR rules then the POAT rules would come into play. The best answer from a pure tax perspective is for her to sell up, downsize to somewhere smaller, and then survive 7 years.

ReportInvestor

I agree with C_C.

Anything else and Gordon will have it covered.

rick59

thanks cook county and everyone who took the time to look back to the drawing board