Avoiding Inheritance Tax

jonbartfinance

Hi,

So my parents are in their Mid 60's and we are looking at options to avoid IHT.

They currently have their home, a second house and a flat. They live in the main home, rent the second house and the flat.


My questions are...

What is the best way to sign the properties over to my brother and I to avoid IHT?

Would my brother and I need to be named jointly with out parents or outright (my brother and I only)?

How many years would we need to be the named owners to avoid IHT?

Does this vary depending on if we are jointly named with our parents or solely named (just my brother and I)?

If my brother and I were the only names on the main home and our parents continued to live in the property, how much 'rental' would my parents have to pay to avoid the IHT? (£1 per month?!)


Any suggestions or advice is greatly appreciated.

Jonathan =]

getmore4less

How much is all this stuff worth?

xylophone

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

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/

http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

jonbartfinance

more than the 325k and 650k IHT limits

Your_Hero

jonbartfinance wrote: »

Hi,

So my parents are in their Mid 60's and we are looking at options to avoid IHT.

They currently have their home, a second house and a flat. They live in the main home, rent the second house and the flat.

My questions are...

What is the best way to sign the properties over to my brother and I to avoid IHT?

They can give you + your brother the properties but would have to pay CGT on the gains. This has to be at market value.

Would my brother and I need to be named jointly with out parents or outright (my brother and I only)?

To be effective for IHT, your parents should no longer own the property...

How many years would we need to be the named owners to avoid IHT?

Usually 7 years for gifts if all the conditions are met.

Does this vary depending on if we are jointly named with our parents or solely named (just my brother and I)?

If they still own the property, then it has never left the estate or at least their portion of it.

If my brother and I were the only names on the main home and our parents continued to live in the property, how much 'rental' would my parents have to pay to avoid the IHT? (£1 per month?!)

Market rent otherwise it's not a true gift and they still receive benefit from living in the property, i.e. a gift with reservation.

Your first biggest issue with gifting property is the CGT on the gains they've made over the years of ownership. Main residence may receive private residence relief though and be CGT free.

Mattygroves2

Do they need the income from the rental properties to live off ? If not then they can give all or part of them to you and your brother and so long as they live for 7 years you'll avoid IHT. The rental income will follow the ownership though so you and your brother will pay tax on it. For the rental properties your parents would have a potential CGT bill based on a transfer at market value even if no money changes hands.

If they gift you their own house they will need to pay a market rent so long as they live there which again will be taxable in you and your brother's hands. Otherwise you end up with double taxation as you'll pay IHT and then CGT based on original value rather than probate value when you sell.

You also need to think about deprivation of assets if either of them need care in the future. There is no limit to how far back transactions can be traced back.

Add in the fact that if either of you got divorced or was made bankrupt in the future you could potentially be in a position where their house had to be sold.

Given there are significant values involved get your parents to pay for proper advice from a solicitor or accountant who specialises in capital taxes. If their existing accountant ( assuming they've got. One for the rental business) hasn't got the knowledge ask for a recommendation or find someone who is STEP qualified.

Cook_County

Your parents can avoid IHT if they spend all their money. What are their future costs including their care costs?


Would it not be moral for them to ensure that IHT is payable on their deaths so that they pay their fair share?


What happens if the children pre-decease the parents?