Inherritance Tax

mk1mini

As a hyperthetical situation:
Say Mrs A has a house worth £300,000 and wants to leave it to Mr B & Mr C who are her grandsons. This obviously falls liaible to the inheritance tax.

Would it be possible for Mrs A to sell the house to Mr B & Mr C for a nominal sum (say £10)? The sons would allow her to live in the property for the rest of her life free of charge.

Would this be a legal loop hope? Or would you not be allowed to sell the property for such an undervalued amount?

margaretclare

I think this would be one of those scams which HMRC would easily see through. They've seen 'em all, and then some.

AFAIK you can sell anything to anybody for the price they're willing to pay - theoretically, that is. My late husband and I sold our Pennine cottage to family members at a price that was way below its market value because that was what they could afford (could get a mortgage for). But we didn't do that with the primary aim of defrauding HMRC, we did it because we wanted to move and they wanted to stay. The scheme you're proposing is completely different.

I have also heard of situations where sons or grandsons have bought their parents' council house under the RTB scheme and then evicted parents! So what would be Mrs A's guarantee that grandsons didn't evict her? And how would she feel, being 'allowed' to live in her own house, a bit like a charity case?

Margaret

CLAPTON

just to add

firstly on 300,000 there wouldn't be any IH tax to pay, so presumably Mrs A has other assetts which in total take her potential estate over 300K?

secondly, she is completely free to give her house away to anyone or sell below the real value if she wants to.

Thirdly . If she dies within seven years then for IH tax purposes the HMRC will require the property to be valued at it true worth at the time of disposal and then be treated as part of her estate. IH tax would be payable on the amount over 300k (including the house ).

Forthly if she continued to live in the house without paying a commercial rent then the HMRC would consider the transfer as a gift with reservation and would consider the transaction as null and void for IHt purposes and indeed the grandchildren might be even worse off when they come to sell as they may be hit with CGT as well.

She ought also to consider very carefully about giving it away to granchildren anyway... say they were to marry and then die.. the house would be owned by the wife who may not respect the wish to allow the gran to remain in the property.

If she really wants to pursue the issue of avoiding IH then she's best to consider discretionary trusts as a way forward ..but get expert advice first.