IHT form 500 - Any Hidden Problems?

a&akay

We bought a house in Jul 86 in our joint names as husband and wife with assistance from Mum who was not on the deeds. She paid £25k out of a total of £81.5k purchase price and has always lived in the house with us. I built her a granny flat so she now uses 4 rooms out of a total of 15, plus 1 of the 2garages, so the % of rooms she uses to % of her contribution is a pretty good match. My understanding of the form is that she declares she has done this to avoid the chance of having to pay income tax on notional rent. The house is now worth at max £600k so her 'share' would be less than the £270k Inheritance Tax threshold. Am I missing something?

Petmidget

IHT 500's as I am sure you have been informed relate to Pre Owned Asset Tax, a new wheeze from Gordon. For the uninitiated reading this is works along the lines of if you give an asset away and continue to derive benefit from it (give house to kids + remain living there) you get taxed on the benefit derived in a form of income tax.

In your case, as far as i can read, it doesnt apply. Your mother doesnt own the house nor any part of it, she isnt on the deeds, she probably doesnt contribute to the mortgage if there is one. So no asset to be "pre owned."

This more likely to be treated as a gift from your mother to your of 25,000 back in 1986, which will have no tax effect what so ever.

There may be some complications if/when you sell as the granny flat will likely not qualify for Principal Private Residence as you dont live in it, however property supplied for a dependant relative can also be exempt under a lot of circumstances