inheritance tax house value above threshold

rick59

house value 600,000 mother gives it away to son she carries on living there but son lives there as well son also has a house which is left empty ish and occasionaly used as a weekend retreat presuming the mother lives 7 years then dies does is the house free from tax ?

Debt_Free_Chick

I don't think this will work. As far as the IHT rules are concerned, mother has not given the house away, as she continues to live with it. This is referred to as a gift with reservation and therefore will probably not qualify as a potentially exempt transfer.

Son also potentially has a Capital Gains tax issue as he owns 2 properties, but only one can count as his principal private residence at one time.

This kind of planning requires specialist advice.

rick59

thank you Well if the mother sold the house then the son bought the one next door with the money and they moved in together would that be ok and i presume the son will only have cgt if he sells the other property which he wont if that is ok what is the difference does anyone konw if any of these cases have actualy been to a court of law because once you have given something away you cant have it back it has no reservations ,that is a fact to everyone but gordon brown we are trying to get specialist advise but everyone says i dont think this and i dont think that are there any facts out there please what about the son buys a third property for the mother and doesnt rent or sell the main property is that ok any experts out there .

margaretclare

rick59 wrote:

thank you Well if the mother sold the house then the son bought the one next door with the money and they moved in together would that be ok and i presume the son will only have cgt if he sells the other property which he wont if that is ok what is the difference does anyone konw if any of these cases have actualy been to a court of law because once you have given something away you cant have it back it has no reservations ,that is a fact to everyone but gordon brown

No, if you've given something away i.e. your house, but you go on living in it, not paying rent on it, it's not just a fact to Gordon Brown, it's obvious to anybody! If you give someone a 'gift' it's theirs to do what they like with! I could say 'I'll give you a present at Christmas but I really want to keep it to use it myself'. That's not a gift at all, is it?

The only way this could be got round if mother gives house to son and son charges her an economic rent. She pays this, son receives it (with a rent book and proper tenancy agreement drawn up) and he declares it as income on his tax return and pays tax on the income.

Also, what if mother gives her house away to son, and son decides he then wants to sell the house and make mother homeless?

Margaret Clare

Tim_L

There are all sorts of tax implications, but broadly speaking any obvious attempt to evade inheritance tax by this sort of gifting will come under rules regarding gifts with reservation.

Even if the mother and son bought a different house together 'next door' the son would be liable (a) for inheritance tax on the half of the money gifted to him to buy one half if his mother died within 7 years, and (b) for the market value of the half of the house his mother owns on her death. There would also be a CGT liability on one or other of the houses (including the weekend home) as only one could be a main residence.

There are also questions about whether the mother would obtain funding for any long term care if she had given her house away, or even half of it. However if there is a dependant relative living in the house there are different rules.

You may not like the answers you are getting, but they are the correct ones. If you challenged this sort of thing in the courts, you would lose, because the tax rules are very clear. It's also a very bad idea to mix ownership of assets on the basis of your ideas of what is allowable and ignoring professional advice - a friend of mine has ended up in a massively expensive catch 22 because he and his sister were gifted thirds of three houses by his mother on the basis that this would avoid IHT. It doesn't, and in many ways CGT is a bigger problem in such cases, as none of the people involved can move without triggering a big tax bill for one of the others.

rick59

thanks margaret it may well be obvious but if the son owns the property and allows his mother to live there is it legal or not it appears that it is not. so the question was if a seperate property was bought and the mother had never lived there before what would the situation be . do people have to charge thier mothers rent is that the law ?
and if so do the government have to agree the amount? surely someone has been to court in a case like this before, also the fact the the son could sell the house only goes to prove the there are no reservations with the gift

rick59

Tim thanks well thats exactly wot has happened here the house has been transferred into three parts mother son daughter in 2002 and the whole reason for this question is because one party has now quite rightly it appears said that it wont work. so now the family dont know the best move the mother is very well . would it be best to transfer it back and then just sell the house and then the mother can buy a smaller one and spend the money sending gordon a post card from monte carlo

Tim_L

There is almost nothing you can do to get out of this situation without paying a large amount of tax, but get professional advice. It is worth paying a few hundred pounds for good advice.

Any gift or transfer of value between the three parties will produce a 40% CGT liability for the recipient at the point the house is sold. If you agree to sell the house now, anyone for whom the house is not the principal private residence will have a CGT liability. It is very messy indeed.

margaretclare

rick59 wrote:

Would it be best to transfer it back and then just sell the house and then the mother can buy a smaller one and spend the money sending Gordon a postcard from Monte Carlo?

I think that might be my preferred option if I was in the mother's position as described here. Why does she need a house worth £600K? Wouldn't something small, compact and manageable suit her needs better? The family are going to be tying themselves in knots, thinking of this option or that option to avoid paying tax, which - as Tim has pointed out - is practically unavoidable and in any case, really needs the involvement of professionals to minimise tax, and they need paying too!

Mother: sell the darned house and have some freedom rather than having to worry about the tax implications after you're gone.

Margaret Clare