IHT Mitigation/ Property Rental

oldsmokie

I am attempting to legally mitigate the potential IHT liability on my Father's estate when he passes away. The excess value of the state over the nil rate band is low six figures and so I have quite a lot of work to do!

I inherited an interest in my parental home when my mother died in the early nineties. I now own the property with my father. I believe that we are joint tenants but it's possible that we are tenants in common.

I do not currently live in the house but it's quite likely that I will need to move back as he is starting to become quite forgetful and probably needs someone to be in the house at night. He currently lives on his own but we employ a care worker for him.

My question is whether it would be possible to mitigate IHT by charging him a rent up to the maximum permitted by the rent a room scheme. There would be no point in charging him more than this as my marginal tax rate is 40%. I would effectively be charging him for the use of my share of the property.

Does the rent a room scheme require the property owner to reside at the property. If not can the rent be paid retrospectively? In other words, if occupation is not required, could I charge my father for prior year rental up to the scheme limit for as many years as the scheme has been in existence whilst protesting my income tax position?

somethingcorporate

For the rent a room you will need to reside at the property, otherwise every B2L landlord would use this tax free allowance which trust me, we do not get!

I suggest a few grand invested with a qualified adviser would be well worth it.

elmer

I cant see how you can charge your father rent for a house he owns and lives in.

elmer

CLAPTON

maybe some more detail

how much is the house worth
how much is the rest of your father's estate

how much was your mother's estate
how was it distributed

xylophone

Your parents owned the house as tenants-in- common and your mother's interest was left to you in her will.

It seems likely that you are tenants-in-common but this needs to be checked. http://www.landregistry.gov.uk/public/guides/public-guide-18

As substantial sums are involved, it would be worth taking expert, qualified, specialist advice. http://www.step.org/ might be worth a browse.

Do you have POA for your father? https://www.gov.uk/power-of-attorney/overview

Credit-Crunched

As mentioned, please get professional advice.

Some thoughts to ponder:

i) You will be a professional landlord, you will have to submit self assessments on an annual basis and pay tax on the taxable income

ii) The home will have to have gas safe

iii) The home will have to adhere to the fire regulations of a let property

If you think that you can outsmart the HMRC then you will generally fail, just ask the estate of Richard Burton...

jimmo

Your mother and father must have been tenants in common for her to be able to leave you a share of the house. If they were joint tenants the house would have automatically passed to your father.

http://www.hmrc.gov.uk/manuals/cgmanual/cg70502.htm

http://www.hmrc.gov.uk/manuals/cgmanual/cg70520.htm


Assuming then that there are no other complications, such as your mother leaving your father a life tenancy, and assuming you and your father are now tenants in common, you own your half and your father owns his half. Therefore his IHT liability will only take account of his half share of the house.

Charging him rent in respect of your half of the property will not affect that.

If your father was to give you his own half share of the house and you not move in he would need to pay you full market rent and survive for 7 years to take his half share outside IHT.

However if you do move in with your father he could give you a half share of his half share and the 7 year clock will start on the day you move in.

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm#5

CLAPTON

do bear in mind that as you don't live in the house, you have probably accrued a capital gain tax liability for when the property is sold