paying inheritance tax

EskoMan_2

Hi, I was wondering if anyone could help me with this.

If a property is transfered from a parent to a child, but the parent continues to live there, I understand this is a gift with reservation of benefit.

But if the parent moves out at any time afterwards it becames potentially exempt?

What happens if the parent dies within 7 years, after moving out. Is inheritance tax payable on the both the origianal gift which was a gift with reservation, and on the gift when it became potentially exempt? Or is tax only payable on the value of the gift when it became potentially exempt?

SeniorSam

EskoMan wrote: »

Hi, I was wondering if anyone could help me with this.

If a property is transfered from a parent to a child, but the parent continues to live there, I understand this is a gift with reservation of benefit.

But if the parent moves out at any time afterwards it becames potentially exempt?

What happens if the parent dies within 7 years, after moving out. Is inheritance tax payable on the both the origianal gift which was a gift with reservation, and on the gift when it became potentially exempt? Or is tax only payable on the value of the gift when it became potentially exempt?

Hi Eskoman,

You are correct in your understanding that if the parent remains in the property it is a gift with reservation and not exempt -- unless a full market rent is paid. The rental income would be taxed in the hands of the child.

If the gift is made when the parent moves out, then it is a true gift but death within 7 years means that the gift would be assessed for tax. Less than 3 years and no reduction, but more than 3 years and tapering relief may be available.

If the parent moves out and or makes the gift and has to go into care, it could be argued that the deprevation of assets would not be an exemption for paying for care costs.

A good IFA specialising in this area or a solicitor may be able to help further.

Hope this helps

Sam