Inheritance Tax Protection

john_curzon

With Inheritance Tax I understand I cannot gift a major share of my house to my son to avoid this tax if I continue to live in it. But I've heard some aspects of 'gifting' change if you don't die within a seven year period of making the gift.

Would this apply to giving him a share of the house if i continue to live in it? In other words if i give him a share of the house and don't die within seven years, would his share be liable to some inheritance tax or not? Since if I don't make this gift its over the £325k threshold. Grateful for any assistance. Thanks.

Aegis

Unless you pay rent on your property to your son (which becomes taxable as income in his hands) or pay Pre-Owned Asset Tax on the property, the gift would be useless for inheritance tax purposes regardless of how long you survived. You need to give away the property without reservation of benefit if you want it to work.

mark55man

Plus the 7 year IHT is different from the deprivation of assets rule that local councils will hit you with if you need care

Mojisola

john_curzon wrote: »

With Inheritance Tax I understand I cannot gift a major share of my house to my son to avoid this tax if I continue to live in it. But I've heard some aspects of 'gifting' change if you don't die within a seven year period of making the gift. [/COLOR]

If you gave cash and didn't die in the following seven years, the gift would be free of IHT.

If you give a share of your house and continue to live in the property, it isn't a free and clear gift - your son can't actually do anything with the gift - that's why it stays within your estate for IHT purposes.

kidmugsy

There is, I think, an exception if the child lives in the house with the parent - perhaps it requires him to care for the parent too?

Is anyone familiar with this point?

CLAPTON

are you married?

if so, then depending upon the details, the IHT allowance the estate of the 'surviving spouse can be £650.000

mania112

kidmugsy wrote: »

There is, I think, an exception if the child lives in the house with the parent - perhaps it requires him to care for the parent too?

Is anyone familiar with this point?

That's a 'gift with reservation' - and effectively doesn't change anything.

So long as the donor is making use/benefit of the gift it will still be included in the estate - unless he is making a regular market-rate payment of rent.

I am not familiar with any special conditions for a parent being 'cared for' in the home.

mania112

What might be a workaround is that you pay your son rent and then he GIFTS YOU the money back.....

Aegis

mania112 wrote: »

What might be a workaround is that you pay your son rent and then he GIFTS YOU the money back.....

Two potential problems:

1. The rent would be subject to income tax, so effectively there would be an ongoing loss. In addition, the gains on the property would become taxable under capital gains tax, while could well lead to a large tax bill on disposal.
2. I imagine that such an arrangement would fall foul of the General Anti Abuse Rules, as the overall structure of the arrangement would clearly be artificial and purely for the purpose of avoiding tax.

kidmugsy

I've found it: HMRC refers to an exception for parent living with child.



"However, if you give half of your home to your children, they move in with you and you share bills jointly, the half that you give them won't be treated as part of your estate for Inheritance Tax purposes as long as you live for 7 years after making the gift."

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

Skibunny40

Does the child have to have been living with the parent for the full 7 years?