House in son's names, is it exempt from inheritance tax?

cj500

My parents live in a property (since 1986) which is now worth around £500,000 , when i told them that inheritance tax might be an issue when they pass on, they told me not to worry it had been sorted because they had put the house in my name since 1990. Which obviously means i own the property. But i thought that if my parents still live at this address then the value of the house would still be subject to inheritance tax? is this wrong? Any ideas, thanks

rrwfotr

I wouldn't think so as loads of people live with their folk's etc, it might be an idea to have your name on the council tax to prove that you live there and also have your name on the water bills etc etc.

WHA

Should be OK for inheritance tax, BUT, they have a potential problem with income tax. New rules ("pre owned assets") cames in a couple of years ago which basically say that they should be paying income tax on the "benefit" value of the house if they are not paying you the market rent. The following link gives a better explanation and some links to more detail - http://www.wellwoodhoyle.com/ard/eNEWS_Article.asp?AID=326&ID=113

Tiggs_2

that sounds like a gift with reservation (if its as simple as described) not a pre owned asset issue.

cj500

I dont know if this is important but just to clarify, i no longer live at my parents home, i moved out over ten years ago and have my own property??

Tiggs_2

i assumed as much as they gave it to you in 1990!

giving you an asset but retaining a benifit is a "gift with reservation", ignore the pre owned asset red herring (any gift already covered by gift with reservation rules is NOT effected by pre owned asset tax)

so its as simple as that, you own it....they have it in their estate for IHT!

to make the gift complete they need to cease benifit....by paying you rent (but before that, do they need to? 2 X nil rate band is £570,000....do they have more assets than the house? if not a will may be enough)

bristol_pilot

I find it odd that the house has been transferred into your name without you knowing about it. Did they show you any documents? Ask to see them. It could be that they just said this to dismiss an uncomfortable discussion about IHT/death.

Assuming it was in fact transferred to you, it could be classed as a gift with reservation. You need to consult a specialist solicitor (not just any high street solicitor) and show them all the documentation.

If their wills are done correctly, a trust can be used to make sure that full use is made of both your parents' IHT allowances in which case little if any IHT will be payable. See a specialist solicitor.

Robert_Sterling

Each parent has a £285,000 Nil Rate Band
You needto see a solicitor and get a will which exploits both nil rate bands.
I think it is called a nil rate band discretionary trust that is used.

brranger

Please correct if wrong but I thought as long as they did not die within 3 years of giving you the gift that there was no iht to pay?

Bossyboots

Its seven years.

The fact remains however that this property could not have been transferred to the OP without his son knowing about it unless someone has forged the signature.

Therefore, the first step is to find out exactly what has gone on as if they in fact have not transferred the property then they need to get some tax planning done now.

dunstonh

brranger wrote:

Please correct if wrong but I thought as long as they did not die within 3 years of giving you the gift that there was no iht to pay?

You are wrong I'm afraid.

Its 7 years but you can no longer benefit from that gift. They were living in the property rent free so its treated as a gift with reservation (as Tiggs says). This means its clawed back into the estate for IHT purposes.

They would have to have paid a full market rent for the 7 year countdown to begin.