Would inheritance tax apply if you lived in home address all your life?

advice_please_2

If you've only lived at one permanent address all your life, ie parents home and when the time comes when they aren't about, will you be instructed for inheritance tax.

I know someone in this scenario, think the house is paid off already by parents, but they pay little in the way of any up keep or bills ie don't think utility bills in their name etc.

What happens in this scenario?

p00hsticks

Inheritance tax is nothing to do with where in the country you live and how long you've lived there. At it's simplest, if your total estate when you die (houses, money, investments, car, jewellery, personal items etc) is worth more than a certain amount (currently £325,000) then inheritance tax of a proprtion of the estate over that amount has to be paid.

advice_please_2

Thanks for the response.

Well currently its a father and son living in house as the mother passed away a few years back. Is there ways that the father can do to help reduce this i.e changing names on house to include son who lives their so if its halved own and assuming the house say worths £400k for ease of calc, he owns £200k so is exempt from inheritance tax?

de_g.

IHT depends on the value of the estate.

Will one parent have left it to the other and then to the child? The IHT threshold is then 2x £325,000 or £650,000 total, and 40% above that. So, for instance, if the estate was worth a total of £1m, IHT would be (£1m - £650,000) x 40% = £140,000.

Only around 15,000 estates (out of around 500,000) annually are liable for IHT. Frankly, if your friend or his/her parents have an estate valuable enough for IHT to be a concern, they've probably enough to be able to afford professional advice on minimising the liability.

advice_please_2

Thanks.

Just to make it clear my friend lives with mum and dad, but mum passed away.

When we talk about estate, I should say property as its probably worth £400k max.

Very true he should seek advice. His mum passed away with cancer.
Friend is almost 30 and father is 70ish, so I'm just thinking about their situation.

If the house is only in his dads name but I'm sure if anything happened it will get passed, but does that mean IHT applies to the £400k house as above the £325k

xylophone

IHT depends on the total value of dad's estate, house, savings, personal chattels etc.

http://www.hmrc.gov.uk/inheritancetax/intro/basics.htm

It may be that part or whole of the late wife's IHT allowance will
also be available when Dad dies.
http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-
gifts.htm

The father and son should consult a solicitor concerning Dad's will and IHT planning.

kingstreet

Transferring a share of the property into son's name will not enable them to escape Inheritance Tax if the father continues to live in the property. If you give away an asset, you have to cease to derive any benefit from it under the "gifts with reservation" rules, otherwise it remains part of the estate.

advice_please_2

Thanks. So you can't just transferring ownership and or the father to live their too. Best to seek advice

advice_please_2

Thanks again this is a good summary from link above

There are two things about gifts to be aware of when passing on property:
Seven-year rule. You can make an outright gift of your home to someone, no matter what it's worth, and it will be exempt from Inheritance Tax if you live for seven years after making the gift. This is known as a Potentially Exempt Transfer.
Gifts that you continue to benefit from. If you give your home to your children with conditions attached to it, or if you continue to benefit from the home yourself, this is known as a 'gift with reservation of benefit' and the gift won't be exempt from Inheritance Tax, even if you live for seven years afterwards.

InMyDreams

kingstreet wrote: »

Transferring a share of the property into son's name will not enable them to escape Inheritance Tax if the father continues to live in the property. If you give away an asset, you have to cease to derive any benefit from it under the "gifts with reservation" rules, otherwise it remains part of the estate.

If the son lives in the house with the father, the father can gift up to 50% of the house now and reservation of benefits wouldn't apply, so after 7 years there would be no IHT liability.

Not sure about deprivation of assets though. What happens if father goes into care? Would house then need to be sold anyway?

advice_please_2

Also say that house is worth £360k and has cash, car etc. worth £40k
Total £400k
Is IHT 40% of £400k or £400-325 threshold (75k)