Buying from Parent

imported_jac

Hi

We have sold our house in UK because we live 50% in France. We wanted a base in UK so we are buying my father's house, and our son (28 years) will live there with him.
We are building an annexe so that my father can have his own place, which he requested. My father wants a clause in the house sale, saying that he can live in the house as long as he wants, which is fine.
His solicitors want him to pay for the annexe himself and lease the land that it is on, because otherwise they say he will have to pay tax, because he is living there rent free. Our solicitor says that it will be too messy because, if anything happens to my father, my siblings could claim that he has an interest in the house.
My question is, would he be liable for tax, because he is living there rent free. The solicitors are quoting a law that came out about 3 years ago, to stop people from selling their assets to avoid Inheritance Tax.

Sorry it's so long. Thanks
Jackie

jennifernil

If you are buying the house at full market value then your father has not gifted you anything, and he will have the money in the bank and this would be liable to IHT if it was more than the nil rate band.
However, if he were giving you the house, or selling it to you at a low price, and putting in the condition that he could continue living there, then that would be a "gift with reservations" or something like that, and so still liable to IHT.
Could also be deliberate deprivation of assets if he ever needed to go into care.
If you are doing everything above board then there is no reason that you cannot invite your father to live with you in your home and I cannot see how he could be taxed on this. However I am not sure about putting this clause in the house sale, is it really necessary?
20 years ago we and my Mum sold our 2 houses, she gave me the money from the sale of her house (only £50k) and we built one house with a "granny flat" for her. The rest of her savings were not enough when added to the money she gave me to take her into IHT. And anyway she lived well over the 7 years required to avoid IHT on lifetime gifts.
To protect her I put a clause in my will saying she had to be housed appropriately or given a quarter share of the proceeds if the house had to be sold.
Even if we had fallen out, her 2 grandchildren would never have allowed me to throw her out on the street!!!