potentially exempt transfer

mptvessel

Hi My father wants to take advantage of the 7 year inheritance tax exemption ( I believe this is called "potentially exempt transfer") and wants to give me his flat. He says for me to avoid paying inheritance tax I would have to live in the flat as a resident. Is this true or could I rent it out? If so, would I be able to rent it out to him? Or would I have to rent it to someone else, so that there is no further interest involving my Dad. I'm not crazy about leaving where I am but I might be a mug if I don't. Is anyone expert in this area or has anyone been through a similar situation and can help me.
thanks Michael

getmore4less

Is his estate so big he needs to do this?

It can get messy if he still lives in the place, you need to look at gifts with reservations and preowned assets as a starter.

securityguy

mptvessel wrote: »

Hi My father wants to take advantage of the 7 year inheritance tax exemption ( I believe this is called "potentially exempt transfer") and wants to give me his flat. He says for me to avoid paying inheritance tax I would have to live in the flat as a resident.l

It sounds like he's been listening to the chatter at the Derby and Joan club and only half understanding.

Firstly, is his estate likely to be substantially over £325k? If not, there is no or little IHT, so it's all a waste of time.

Secondly, where does he plan to live? Because if he's living the flat, it's probably a gift with reservations, and IHT would still be payable.

Thirdly, the issue about you living there is nothing to do with IHT, it's about your capital gains position when you come to sell it later. CGT is payable on the sale of property other than your primary residence, and the CGT on seven or more years' movement in the UK property market could easily outweigh the IHT.

sneekymum

Let him give you the flat (assuming he doesn't need to live there) and then sell it and move yourself to somewhere bigger/nicer, or pay off your mortgage.