Inheritance Tax

Nurse_Liz

A hypothetical question please. Say I currently own my own property (worth around £500k with a mortgage outstanding of £150k). I am divorced, aged 52, and I am thinking ahead and want to leave the property to my physically disabled 24 year old daughter (and only child) and at the same time minimise the tax burden. Can I add her name to the Deeds now making her co-owner? And if I am then to live for at least another 7 years (I hope I do) then is this a permissable legal way to achieve this?

Thanks.

John_Pierpoint

Normally you cannot give away an asset and continue to benefit from it.
You would have to pay your daughter a market rent for use of her half.
However as she is handicapped there just might be a trust solution. Where a trust for a disabled person owns half of the house.
I don't know - does her handicap have a society with a legal adviser who might understand the need to keep a roof over your daughter's head after your death?
I think we all need more information about your daughter's condition and future prospects.

ceeforcat

The good thing is that you have raised the question before acting - not always the case and then we have the nighmare of trying to reverse the deed. If you transfer the property into joint names and continue to live in it, the transaction is ignored for IHT purposes.

As John says, we really need more information.

zygurat789

John_Pierpoint wrote: »

Normally you cannot give away an asset and continue to benefit from it.
You would have to pay your daughter a market rent for use of her half.
However as she is handicapped there just might be a trust solution. Where a trust for a disabled person owns half of the house.
I don't know - does her handicap have a society with a legal adviser who might understand the need to keep a roof over your daughter's head after your death?
I think we all need more information about your daughter's condition and future prospects.

Would this still apply if both the OP and her daughter were living in the property?

John_Pierpoint

Good point, you might well be right according to Google finding this legal web site:

http://www.elderlycarelaw.com/archives/74

I thing this situation was intended to cover an offspring caring for a parent (and perhaps the other way round).

[I was able to benefit from a law (now repealed for new cases). It allowed me to house my mother in a property of mine and avoid CGT on its eventual sale.
The law required the elderly person to be "dependent" on their offspring, but a widow was automatically defined as dependent, regardless of wealth and health.]

Perhaps someone with relevant legal or practical experience will be passing by soon?

UPDATE:

The situation is discussed by some normally reliable posters here:

http://www.taxationweb.co.uk/forum/gift-with-reservation-of-benefit-t34205.html

purple_haze

If your daughter lives with you, then s102b Finance Act 1986 provides that the gift of part of the property to her will be a potentially exempt transfer rather than a gift with a reservation, so the value of that share will be removed from your estate for Inheritance Tax purposes if you survive for 7 years. The gift could be effected by a simple declaration of trust rather than a transfer of the legal title which would mean attempting to have your daughter added to the mortgage.


If your daughter doesn't live with you, then any gift of a share of the property, whether to her or to a trust,would be a gift with a reservation and so ineffective in mitigating Inheritance Tax.

Nurse_Liz

Thank you everyone that replied.

My daughter is paraplegic with several health issues, and lives alone with carers who visit, in a specially adapted council flat on Disability Living Allowance. It's hard to know for sure what the future holds as she is a bright and talented person; at the moment she is contemplating trying to study part-time to gain some qualifications as she missed a lot of schooling, but I can't really say whether she might ever work or be able to fully support herself. I hope so but right now this is too far off to be able to contemplate realistically.

I have been thinking about making a Will hence questioning things like Inheritance Tax.

Alternatively I wonder whether I could try to use some of the equity in my place and/or take out a further mortgage to help buy her her own flat now but then again there must be tax implications with that too...Aah!

Chris_Tax

Nurse_Liz wrote: »

Thank you everyone that replied.

My daughter is paraplegic with several health issues, and lives alone with carers who visit, in a specially adapted council flat on Disability Living Allowance. It's hard to know for sure what the future holds as she is a bright and talented person; at the moment she is contemplating trying to study part-time to gain some qualifications as she missed a lot of schooling, but I can't really say whether she might ever work or be able to fully support herself. I hope so but right now this is too far off to be able to contemplate realistically.

I have been thinking about making a Will hence questioning things like Inheritance Tax.

Alternatively I wonder whether I could try to use some of the equity in my place and/or take out a further mortgage to help buy her her own flat now but then again there must be tax implications with that too...Aah!

Given your age, I would imagine you are in reasonable health.

There would be no immediate issue in respect of you releasing some equity in your own home. Capital Gains Tax will not apply to the transfer of money.

For Inheritance Tax the gift of money is a "PET" (potentially exempt transfer). This essentially means no IHT will be payable assuming you survive seven years.

If the unfortunate happens in the interim you may well result in some IHT payable on this PET & remainder of your estate.

Another point which may well have already affected you; you should not have been charged VAT on any adjustments made to your home, or indeed any future home, to accomodate your daughter. See hmrc / vat / sectors / builders / disabled.htm (sorry new users can't post links!!). It may be worth investigating the recovery of such VAT charged.

Hope this helps!


Chris

antrobus

Chris_Tax wrote: »

If the unfortunate happens in the interim you may well result in some IHT payable on this PET & remainder of your estate.

But you can, of course, take out life insurance to cover that possibility.