IHT 7-Year Rule Property Split

Jake'sGran

EdInvestor wrote:

No, it means that if she did transfer half to your name and then lived for another 7 years, it would not be liable for IHT. (BTW the IHT free allowance is 300k from April).

We had been talking about this, yet again, and I wondered when it was going up so thank you for the information. Not that it makes any difference in our situation - we still need wills making use of the two nil rate bands. At least I have got used to the idea of having to pay approx £500 for doing this.

Just as a matter of interest, couldn't the original poster have become a Joint Tenant with his mother or would this have been pointless?

chris2kate

Is stamp duty (or it's replacement) due on this type of transfer?

chris2kate

Thanks for the response, further digging at the land registry site lead me to the same conclusion.

Willman_Rodders

As a professional will writer I am always interested in reading of ways to get around the inheritance tax. In the past our industry used trusts to overcome the Gifts with Reservation rules. In 2004 the Finance Act introduced the Pre-Owned Asset Tax - designed specifically to overcome those schemes that tried to work around the GWR rules.

In general terms, these provisions impose a Pre-Owned Asset Tax (POAT), which is an Income Tax charge on the donor where an asset has been given away at any time since 17th March 1986, but the donor continues to use it, in situations where the transaction is not treated as a gift with reservation. The relevant provisions are in Section 84 and Schedule 15 of the Finance Act 2004.

I don't know enough about the application of POAT to comment further. I do know its application is complex, and that when it was introduced there was organised chaos (panic might be a better description) as tax advisers , IFAs and willwriters worked to unravel what had been put into place.

My recommendation would be to speak with a tax specialist before proceeding. The last thing you want if for your mother to have to pay a 6% income tax charge on 1/2 the value of her house.

EdInvestor

I see there was mention in the FT last week on your issue, jackdoor.

http://www.ft.com/cms/s/5eb5a422-fa2f-11db-8bd0-000b5df10621.html

eas_2

‘AFAIK this idea won't work as it will come under the 'gift with reservation of benefit' rules. Suggest you consult your solicitor.

Note that if she eventually needs long-term care but a child over 60 (you?) is living in the home, the council will leave it alone.’

I am interested in the last para.

Since the death of my father some four years ago I have been caring for my mother. I live five minutes away and visit daily, often spending the night. Although she is totally competent mentally and physically to manage her own life, she has recently become less steady on her legs. I have therefore considered moving in permanently with her as I am worried about her being alone and falling – and the effects of this physically and (more importantly for her) mentally.

I would keep on my own property but would lose out financially in various ways, ie, I presently receive a 25% rates rebate as I live alone (this is quite substantial). Both my mother and I are over 60, both own our bungalows outright and would wish to retain our independence, ie, it is important that we are both able to reverse the decision to live together should the arrangement not work out.

I was quite happy to just move but your email was interesting as the family is concerned that my mother’s property would have to be sold (or some other arrangement made) should she require care in the future. I therefore have a couple of questions which you may be able to answer.

1 If I move in to my mother’s bungalow now would her property need to be sold to fund any future care?
2 What would be my position in respect of capital gains tax in future on my bungalow if I made my mother’s property my principal private residence (I have owned and lived in my bungalow alone since 1992 and my mother’s property has been her PPR since circa 1984).

If you think of any other issues which may arise, or need to be addressed, I would be grateful if you would raise them. Also, any other suggestions would be gratefully received.

Please note that both properties are valued at less than £300K and so would not attract inheritance tax. Also, I have been thinking of claiming attendance allowance but have not yet had time to go into this.

margaretclare

Eas, you don't claim attendance allowance - your mother does. Given all that you've written about her, it would be a good idea for her to apply.

Try: http://www.direct.gov.uk/en/DisabledPeople/FinancialSupport/DG_10012425

It's worthwhile applying, it will bring her in £62.50 a week non-taxable and not subject to means test.

The questions you ask puzzle me a bit. You say you would keep on your own bungalow, then you ask 'would her property need to be sold to fund any future care?'

Well, assuming your mum's bungalow is her main asset, yes, probably it would. However, you wouldn't be homeless, would you - you said you'd keep on your own bungalow? So you wouldn't need your mum's as well, if the situation ever arose when she couldn't live in it any more herself?

Margaret

EdInvestor

I see that those who make money from finding tax loopholes are now on this case.

http://business.scotsman.com/finance.cfm?id=777712007

The trouble is that such attempts (by the very well off and their advisors) to manipulate the rules are like a red rag to a bull at HMRC and often seem to result in the withdrawal - or scaling down - of the original benefit, to the disadvantage of all, including those who are not wealthy at all.

gudda96

As I am doing research on best way to plan, a solicitor told me yesterday, that although 1 spouse dies without changing to Tenants in Common(which is advised) there is a 2 year period when the surviving spouse can still do it.

mary43

Myself and my husband have recently been thinking about transferring our home to our two sons. They don't live with us and really the main reason for this is to avoid being obliged to sell the property should both of us find we are unable to look after ourselves and have to live in a care home.
If we're not able to do this then I can only think of making sure that if this should happen then I can get a place with Extra Care. They have a lot of 'villages' and care places around the midlands and my mother is currently living in one of them. She was able to either rent or buy the flat. She opted to buy it knowing that following her stroke and being immobile she was unable to be cared for by me or my brother. At least that safe guarded some of the money from the house. Mum was brought up to work hard and leave something behind as her father had done and the thought shemight not be able to do that was very distressing to her until we found the place she's in now. I was going to see a solicitor about it but if it can be done without all that I would rather