Joint ownership of father's house - IHT safe?

oxfordhippo

Hi,

My query is about IHT, and owning and using 1/2 my fathers house will avoid IHT.

My father is a widower.

He kindly put 1/2 the house into my name over 7 years ago.
The primary aim was to reduce the IHT on his estate.

I am an only child.

His estate will be over £950k ( and we are aware that my mothers Nil rate allowance can be carried over and so there should be a combined, total allowance of £650 for IHT ).

I have lived there for a bit, but am now married and so don't live in the house.

But - I let out my 1/2 of the house to lodgers, and I declare the lodgers' rent on my tax returns - so pay tax on it.

I also use some rooms non-exclusively for my work, and I exclusively use the detached garage.

I also pay 1/2 the bills on the house ( gas and electricity etc ).

My father does not pay me any rent.
He is retired.
He has exclusive use of his bedroom, but the rest of the house ( Kitchen, sitting room etc. etc. is open to use by the lodgers.

He also rents out a room to a Lodger, and declares that on his personal tax returns ( apparently the rent-a-room allowance is affected as we both let to lodgers )

I think this may be a slightly different scenario for the question I have seen a few times ref. parents gifting a house but the parent still living there / or the child living there with the parent?

Does anyone have any experience of this sort of arrangement -and if I need to take annual notes / photos etc. to prove my use of 1/2 the house.

In particular - is there anything else that should be done to ensure HMRC agree that the gift to me was not a gift with reservation.

many thanks.

getmore4less

You also need to consider pre owned assets.

can't answer though

00ec25

you have a dogs breakfast containing a number of serious errors which you need professional advice to sort out because, as it stands on the info presented, you are very very wrong

IHT
Your father continues to live in the property. He did not pay you full market value for the half share he transferred to you, so the rest of your assertions are irrelevant as it is undeniably a “gift with reservation” since he continues to wholly benefit from use of the property even if he only owns half of it. As such it remains 100% within his estate for IHT purposes. You have made the classic mistake of a DIY IHT planner and it has utterly failed, all (950 - 650) 300k of value remains exposed to IHT irrespective of the fact you legally own 50% of the property

Capital gains tax
You legally own half of a property in which you do no longer reside as your main home. Therefore you are now exposed to CGT on the gain in value of the property between the date it ceased to be your main home and the (eventual) date you sell it. The cessation date is the earlier of the date you got married or the date you moved out - assuming your wife has never lived in the property post marriage. This is the classic “double whammy" where people do not understand the relationship between IHT and CGT

Rental income
Your father has a lodger who (I assume) pays rent directly to your father – he is thus entitled to claim 100% of the rent a room (RAR) allowance against his own income tax. The fact you own half the property is irrelevant as the person is your father’s lodger not yours – I reiterate this assumes you do not get any share of that person’s rent

You do not (now) have a lodger as you are not a resident LL (see usage comments below) therefore the person who pays you rent (who you incorrectly refer to as your “lodger”) is legally your tenant and so you are not entitled to use the rent a room allowance at all. You must therefore declare the net profit you make, not the excess income over the RAR allowance and pay income tax on that net profit. i assume you have met all the other requirements of being a landlord, eg: deposit lodged with a protection scheme, valid tenancy agreement in place?

Utility bills and your usage of the property
You pay half of the utility bills and therefore can claim (some of) that cost against your rental income BUT you also admit that you continue to use the property for your own personal use. Therefore some of the utility cost is down to you, not down to your tenant, so you cannot claim all of your half share of the utility bills since not all that usage is attributable to your tenant.

as you say some of your usage is related to your "work" then you may have a case for claiming an element of the utility cost against your business costs - this will depend entirely on the nature of your "work" and is a whole separate topic on which you need advice

Pre owned asset
Your father gifted you a half share, he did not pay you any money therefore the pre ownee asset rules are irrelevant. They apply to the circumstance where father sells a house, gives you the money which you then use to buy a property in which father then takes up residence (ie effectively father is living in a house he paid for)

That is not the scenario you outline, father has simply given you half of the property without any money changing hands