Putting house in joint name with son to avoid IHT

I am unmarried in my late 60s and have one grown up son. He currently lives overseas and has recently married. He is due to return to the UK in around 18 months but I don't think they will want to live with me when he gets back. I assume they will buy a place of their own. I have a large house worth a considerable amount and am wondering about making him a joint owner so that in due course when I die he could move into it and avoid IHT. (I am currently in good health and not planning to die in the near future but am thinking ahead to leaving my estate to him). Meanwhile I will continue to live in the house and pay the bills and will have no financial benefit from the change to joint ownership. Nor will he if he is buying his own home on a mortgage and living there. Are there any tax implications we should consider?

Comments

  • pollypenny
    pollypenny Posts: 29,392
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    There are indeed tax implications. You must consult a solicitor over such an important move.

    You can create a trust, I believe, which will help with IHT, but it is complex and the circumstances of each individual will be different.
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  • monkeyspanner
    monkeyspanner Posts: 2,124 Forumite
    edited 15 August 2009 at 6:12PM
    A few points that spring to mind.
    - If your son does not live in the house then he would be liable for Capital Gains Tax on its sale. He could possibly avoid CGT by nominating it as his primary residence prior to sale. This could have a knock on to the CGT treatment of his other residence on its sale but if he gets the timing right there should be a benefit in this nomination.

    - If you transfer part of your house to your son then this could be considered a potentially exempt transfer (PET) which would mean that after 7 years it would fall outside of IHT. However if you still live in the house and do not pay your son a commercial rent for his part of the property, the revenue could say you have made a gift with reservation as you are retaining the benefit of his part of the property. This would mean that the PET would be invalid and the full value of the house would be counted as part of your estate.

    - It is worth considering this change of ownership as it is possible that should you ever need a care home placement and have minimal assets other than your property and insufficient income to cover the care home fees then a part owned property may not be assessed when considering your contribution to the care home costs. There may also be some technical benefit to your choice of either joint ownership or tenants in common.

    - Had you been widowed or the surviving partner of a civil partnership rather than unmarried there would also be the possibility of an additional IHT allowance if unused from the death of the first partner which would potentially double the IHT exemption limit.

    I am sure there will be other legal and tax considerations so as pollypenny says you should take specialist tax/legal advice.
  • missile
    missile Posts: 11,684
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    Do not rush into this. There are many things to consider. What if son gets divorced? Ex wife will be entitled to half of his estate including his share of your home!

    You do not say how much your estate is worth, is it worth the hassle?
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
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  • moonrakerz
    moonrakerz Posts: 8,650
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    usignuolo wrote: »
    when I die he could move into it and avoid IHT.

    Do you really think that the taxman hasn't thought of this one ??
  • monkeyspanner
    monkeyspanner Posts: 2,124 Forumite
    moonrakerz wrote: »
    Do you really think that the taxman hasn't thought of this one ??

    Well maybe yes. In the same way that MP's switching their main residence to avoid CGT on second homes which the public had financed was fine as far as the taxman was concerned. Hazel Blears didn't have to write that cheque she was smugly waving about on TV.
  • moonrakerz
    moonrakerz Posts: 8,650
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    Well maybe yes. In the same way that MP's switching their main residence to avoid CGT on second homes which the public had financed was fine as far as the taxman was concerned. Hazel Blears didn't have to write that cheque she was smugly waving about on TV.

    No, I'm afraid not at all, "in the same way".

    Like it or not, what most of the MPs, including Hazel Blears, were doing was within the rules; after all they wrote the rules !
  • monkeyspanner
    monkeyspanner Posts: 2,124 Forumite
    moonrakerz wrote: »
    No, I'm afraid not at all, "in the same way".

    Like it or not, what most of the MPs, including Hazel Blears, were doing was within the rules; after all they wrote the rules !

    Exactly, what the MPs were doing was within the IR rules for CGT and the same rules regarding first/second home nomination apply to all taxpayers. So although the IR have thought about CGT/IHT evasion and put rules in places there are still ways to work within the rules and not pay as much tax.
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