Inheritance Tax advice please

rsmart84_2

I really need some help please. My granddad is selling his house to give his 3 children the money (1 of which is my dad). I think they’re getting £40000 each and I’m worried that my dad does not understand how the tax works. Could anybody give me some advice please on how we can avoid the tax (legally) or were I should go for advice?
Thank you for your time

jem16

There is no tax to pay at this time. However if grandad were to die within 7 years then the value of the gifts could then be counted towards IHT if it is due on the estate.

Where is grandad going to live?

rsmart84_2

My grandad is going to live with his daughter, and i belive its due on the estate.

sleepless_saver

Google "deprivation of assets" for the main potential problem in your grandfather's plan. If he needs residential care in the future he may well be assessed as still having the value of the house.

diable

Isn't the limit £325k?

John_Pierpoint

What became of "grandad's" wife?

She too has/had a 325K nil rate IHT allowance.

To comment further we really need a valuation of Grandad's net worth including the 120K he is thinking of giving away; together with some idea of his age and general health.

taxing

jem16 wrote: »

There is no tax to pay at this time. However if grandad were to die within 7 years then the value of the gifts could then be counted towards IHT if it is due on the estate.

If the PET fails, your dad should realise that he will need to pay any IHT that becomes due on the fact that it failed.

Worse case scenario is tax of £16,000 (£40,000 x 40%) assuming grandad dies within 3 years of the gift. After that the tax is tapered by 20%, year 3 to 4, by 40% year 4 to 5, 60% year 5 to 6, and then by 80% if grandad dies in year 6 to 7. (After 7, then home free..).

Regards

findingout

so thats a total of £120 he will get for the house? in which case it is under the IHT threshold so no tax payable on fluid/cash as far as capital gains goes (I think) where is your grandfather going to live? as this could complicate things in several ways. Will there be any money left over for your grandfather? and why does he want to sell it and give the money now? this is something I have been sorting through legally or very similar at least the past two days and if he is doing it to avoid anyone paying tax there might well be a better was of doing it that safe guards all of you including him and his home until he dies and still tax free. But don't know without more info.

findingout

IF the house is signed over now jointly between you all but he has a life time living in it (legally drawn up) so long as he does not go into a carehome within 5 years of that being done, the council cannot go back and take money out of the house for carehome fees from his house now in your names. As legally we can not see 5 years into the future and that is the chosen cut off point. Basically he could change the title deeds to one or all of your names now and have a gift of reservasion allowing him to live out his life in the house. Then if he remains in the house 5 years before going into a carehome council can't touch the house for fees. If before 5 years they can even though it is in the children names. If he signed the house over and had no benefit from it at all, no money out of it, not living in it etc then it is a full gift and different laws. Again the law changes if he remains living it it whilst in the childrens names and pays full market rental value to them. Also if any of the children are on benefits you would need to double check with the tax office if they would loose the benefit due to notional capital though the fact they can't sell due to the life reservasion may well mean chances are it is not seen as notional capital as it can not be accessed till death (then becomes not cap if on benefits hence would have to stop claiming benefits at that point) capital gains would only then come into play when the house was sold by the children if it were not the first/main residence of the owner. Hope that makes some sense?! was speaking to my lawyer only this morning about this.

findingout

Forgot to add if he wants to sell the house and give the children the money to avoid carehome fees this will not work unless he does not go into a carehome for 5 years, else the council can come back and take the money from the children for the fees as he would have seen to be have evading paying.

taxing

findingout wrote: »

so thats a total of £120 he will get for the house? in which case it is under the IHT threshold so no tax payable on fluid/cash as far as capital gains goes (I think) where is your grandfather going to live? as this could complicate things in several ways. Will there be any money left over for your grandfather? and why does he want to sell it and give the money now? this is something I have been sorting through legally or very similar at least the past two days and if he is doing it to avoid anyone paying tax there might well be a better was of doing it that safe guards all of you including him and his home until he dies and still tax free. But don't know without more info.

That is assuming that at the date of this gift he has made no previous chargeable lifetime gifts nor PETS which fail on death and come back in to charge, of course.

As one poster said - there isn't really emough info here (although the now silent question raiser did say IHT would be due on death estate) but 'dad' just needed to be aware of the possibility of a charge on him - many gift recipients don't realise that when the gift fails on death it is they who pay the IHT on the failed PET - not the executors of the death estate.