gift with reservation

A1B

Apologies if this title is on a thread elsewhere. I need some help and having read many other threads thouhgt this was a good place to start. My question - now there have been changes to the 'gift with reservation rule' what is to stop me buying my parents house (say £300K), paying stamp duty and then letting them live in it (paying their own bills). When they die the house will already be mine - will this avoid IHT. Would this also avoid them having assets for example if they needed a nursing home? Assuming they have spent their sale monies? Any help or thoughts in this area appreciated.

dunstonh

No. it would not avoid IHT as your parents would still be benefiting from the house and that is not allowed.

It wouldn't avoid the asset being included in the local authority care means test either.

They should look at setting up a discretionary will trust and putting the ownership of the house as tenants in common.

A1B

Is IHT avoided if I pay all the house bills as well? and lets say they lived for another 7 years?

dunstonh

No. They are living in the house they gifted. The house is still giving them benefit.

They could pay full market rent but you would have to declare that rent on your tax return and pay income tax on it. HMRC could still look at it closely and reject it. Also, would become liable to CGT yourself on the property when you sell it many years to come (40% of the gain).

The discretionary will trust is the cleaner way of doing it.

Paul_Varjak

dunstonh wrote:

No. They are living in the house they gifted. The house is still giving them benefit.

Dusntonh: I think in both of your posts that you have misunderstood the OP. He is proposing to BUY the house, but it is not clear if it would be the full market price.

zzzLazyDaisy

Paul_Varjak wrote:

Dusntonh: I think in both of your posts that you have misunderstood the OP. He is proposing to BUY the house.

Yes, OP says he intends to buy the house and pay stamp duty. But does he actually intend to pay the purchase price to his parents, or is he simply intending to go through a transaction that states that a purchase price has been paid, in other words, will the actual expenditure be limited to the stamp duty, with the purchase price being gifted by the parents?

The reason I ask is that there does not seem to be any suggestion that the parents will now have £300k to spend, on the contrary, OP makes specific reference to the Gift with Reservation rule.

Could OP clarify please?

Paul_Varjak

zzzLazyDaisy wrote:

Yes, OP says he intends to buy the house and pay stamp duty. But does he actually intend to pay the purchase price to his parents, or is he simply intending to go through a transaction that states that a purchase price has been paid, in other words, will the actual expenditure be limited to the stamp duty, with the purchase price being gifted by the parents?

The reason I ask is that there does not seem to be any suggestion that the parents will now have £300k to spend, on the contrary, OP makes specific reference to the Gift with Reservation rule.

Could OP clarify please?

But the OP specifically states:

A1B wrote:

Would this also avoid them having assets for example if they needed a nursing home? Assuming they have spent their sale monies?

They can only 'spend' their sale monies if the OP paid his parents for the house!

dunstonh

Sorry, I was answering on the basis of gift (from the title) and skimmed past the buy bit. An outright purchase as full market value isnt a gift.

However, the 300k (as example) would still be in the estate as its just transferring one asset to another (house to cash). It doesnt avoid anything and if you then gift that 300k cash, the local authority means test could claw that back in again. So, a discretionary will trust seems a better option seeing as local authorities havent been able to get their mits on them that way. Plus it uses the first death nil rate band for IHT purposes. It kills two birds with one stone.

A1B

Sorry for the the confusing title. That was the thing that started my train of thoughts.

Being more clear in this scenario I would pay the market value in cash to my parents, pay the stamp duty and have the deeds in my name. My understanding is that this would mean they have not gifted me the house.

I wish for them to live in the house rent free and they have 300K as cash as their assets (and lets assume that's all they have). The question at this stage, ignoring nursing home issue, can they live rent free in my house? who pays the bills (esp council tax?) them or me?

Any thoughts at this stage of my scenario?

A1B

Paul - an interesting reply. Suppose investment bonds were bought, how come they are not included in assessment for care homes? Is this something that would change once the chancellor realises this loophole? In my scenario if both parents kept £10k in cash and bought £140K in bonds that would also avoid the nursing home scenario and still be under IHT (assume nil tax to be £300K in furture), without needing a trust. What happens to these bonds on death?

dunstonh

With investment bonds there must be no documentation in existence that says that is the reason for doing them. They have to be documented as the reason for doing them being investment purposes. It helps when they are done quite a lot in advance as there can be no question to the purpose if they were invested 4-5 years earlier.