Inherited Property Issue

oldsmokie

I am just starting to work out the IHT on my late father's estate but someone has raised an issue that has got me concerned.

My mum died in 1993 and I inherited her share of the house. The ownership was then converted so my Dad and I were joint owners. The house has passed to me through survivorship.

I'm fairly sure I can prepare the IHT forms but someone has suggested that I should have been charging my father rent equivalent to 50% of the market rent for the house when I didn't live there (essentially all of the time since my mother died). Please could someone confirm if this is in any way correct and let me know what I should google to find the rules.

Thanks.

Laurajo_2

They were maybe thinking of the gift with reservation of benefit legislation and pre owned asset charge - where you gift something to somebody but continue to benefit.

As you inherited your half of the house, I don't believe it would apply.

BobQ

oldsmokie wrote: »

I am just starting to work out the IHT on my late father's estate but someone has raised an issue that has got me concerned.

My mum died in 1993 and I inherited her share of the house. The ownership was then converted so my Dad and I were joint owners. The house has passed to me through survivorship.

I'm fairly sure I can prepare the IHT forms but someone has suggested that I should have been charging my father rent equivalent to 50% of the market rent for the house when I didn't live there (essentially all of the time since my mother died). Please could someone confirm if this is in any way correct and let me know what I should google to find the rules.

Thanks.

It was not a gift with reservation from what you say so just work out the IHT liability on what he left in his estate.


I assume you realise that if and when you sell the house YOU will probably have a CGT liability on your share of the house from 1993 till now.

John_Pierpoint

Did you ever live in it as your principle private residence?

oldsmokie

Thanks. That confirms what I thought. There's certainly no gift with a reservation of benefit here.

I realise that there may be a CGT liability. I am researching the principal private residence issue. Whilst I didn't live at my father's house, I only owned my own residence for part of the time after my mother died. Since 2004 I have rented.

It seems unfair but my understanding is that a PPR has to be the main residence and I will end up paying CGT even though I don't have another property to choose as my PPR since 2004.

CLAPTON

oldsmokie wrote: »

Thanks. That confirms what I thought. There's certainly no gift with a reservation of benefit here.

I realise that there may be a CGT liability. I am researching the principal private residence issue. Whilst I didn't live at my father's house, I only owned my own residence for part of the time after my mother died. Since 2004 I have rented.

It seems unfair but my understanding is that a PPR has to be the main residence and I will end up paying CGT even though I don't have another property to choose as my PPR since 2004.

The criteria for PPR is that you actually live there: whether you rented or owned elsewhere is irrelevant. It's not about owning only one house; it's about owning and living there. CGT will almost certainly apply in this case.

oldsmokie

Thanks. Pretty much as I thought.

John_Pierpoint

When you acquire a property you can make an election.

Ask an MP how to do it, they were particularly good a "flipping" during the property boom.

oldsmokie

John_Pierpoint wrote: »

When you acquire a property you can make an election.

Ask an MP how to do it, they were particularly good a "flipping" during the property boom.

Yep but the residence requirement still applies. I've been reading around.

I might be able to get the last three years gains as PPR relief if I moved into the house and lived there for a while (more than a couple of months) but that would be incredibly inconvenient.

These rules are remarkably unfair when the property wasn't an investment and where I can't get PPR exemption anywhere because I rented.

uknick

With regard to charging your father etc, I wonder if this is what they were referring to;

In the United Kingdom, Her Majesty's Revenue and Customs acted against certain inheritance tax (IHT) schemes by imposing a standalone income tax charge from 6 April 2005. This has become known as pre-owned assets tax (POAT). POAT applies where an individual disposes of an asset but somehow retains the ability to use or enjoy it. POAT is never applicable when IHT is; therefore, the media and public have granted the issue little attention. POAT is also a retroactive tax: even if an action had no IHT repercussions at the time, POAT may be applied years after the action.

To get round this the donor can pay market rent to the donee. But, this is not applicable in your case, as it was your mother's half you inherited. It was not from your father.

oldsmokie

No, I don't think POAT applies as this matter was just to with IHT.

As a bit of a bonus, I've read elsewhere that as I didn't charge my father rent, I will have to include the full value of the house (not just his share) in the IHT calculation.

If my reading of this is correct then there's a double tax whammy. IHT subject to transferrable nil rate band relief and CGT on the gain on my share since I inherited my share of the property.