Reducing IHT by gifting house

Daniel54

martinsurrey wrote: »

deprevation of assets is only an issue if the reason for the disposal is to avoid care costs. If the parents do not need care now, it is not an issue.
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That's not quite what the AGE UK 2015 Factsheet says.
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true
It does indeed state

"The statutory guidance also confirms that, for example, it would be [FONT=Arial,Arial][FONT=Arial,Arial]unreasonable [/FONT][/FONT]to decide that a person had disposed of an asset in order to reduce the level of charges for their care and support needs if at the time the disposal took place they were fit and healthy and could not have foreseen the need for care and support"

However it also later states

" The nature of the rules on deliberate deprivation of assets mean that it is [FONT=Arial,Arial][FONT=Arial,Arial]not possible to predict with certainty [/FONT][/FONT]whether the local authority (or Pension Service) will raise the issue during any future financial assessment means test. Local authorities and the Pension Service will not usually advise you beforehand how they might treat a particular transfer at a later time."

Savvy_Sue

martinsurrey wrote: »

The other risk factor is bankruptcy of you or your sister, the family house could be sold to cover your debts, putting your parents out on the streets (not literally, they have £700k of investments, but you get my point)

Although we don't know anything about the family situation of OP and sister, another risk is divorce. If they own part of a house, then that can be included in the calculations for divorce settlement.

and another one is the need to claim means tested benefits, where again owning a house which someone else lives in still gets taken into account. It's possible to be asset rich and cash poor - very poor. In a very lovely family obviously everyone would take care of each other, but if the two siblings are in very different positions and one is perceived to be 'scrounging' off the parents, it's easy for things to become less lovely ...

getmore4less

SeniorSam wrote: »

The 7 year rule would not apply if a full market rent were being paid on the gift of the property. This does need to be a rent which is 'professionally' assessed and not just an approximation and it needs to be reviewed each year with full records being kept.

How does paying rent stop it being a PET?

SeniorSam

It is a PET for 7 years, but if a full market rent has not been paid, then the Settlor has retained the interest/benefit and as such the Revenue would disregard it as a gift. After the 7 years, they could stop paying if the owners were happy with that as it belongs to them.

Sam

martinsurrey

SeniorSam wrote: »

It is a PET for 7 years, but if a full market rent has not been paid, then the Settlor has retained the interest/benefit and as such the Revenue would disregard it as a gift. After the 7 years, they could stop paying if the owners were happy with that as it belongs to them.

Sam

PET and Reservation of Benifit are 2 seperate issues, even if market rent is paid it is still a PET, but it is not a gift with reservation of benifit.

PET is not an issue after 7 years, and applies even if market rent is charged (PET is about the transfer of the capital asset, what you do with that asset after transfer is of no concern to the PET)

Reservation of benifit (RoB) is not an issue as long as the market rent is charged, and it has no time limit, paying rent for 7 years and then stopping for the next 20 and HMRC will be looking to disregard the gift for IHT (RoB is to stop gifts in which the benifit of the gift does not go to the recipient, and in this case the benifit of the house is the market rent).

https://www.gov.uk/inheritance-tax/passing-on-home

simple guide here

ikorodu

martinsurrey wrote: »

PET and Reservation of Benifit are 2 seperate issues, even if market rent is paid it is still a PET, but it is not a gift with reservation of benifit.

PET is not an issue after 7 years, and applies even if market rent is charged (PET is about the transfer of the capital asset, what you do with that asset after transfer is of no concern to the PET)

Reservation of benifit (RoB) is not an issue as long as the market rent is charged, and it has no time limit, paying rent for 7 years and then stopping for the next 20 and HMRC will be looking to disregard the gift for IHT (RoB is to stop gifts in which the benifit of the gift does not go to the recipient, and in this case the benifit of the house is the market rent).

https://www.gov.uk/inheritance-tax/passing-on-home

simple guide here

Thanks all for the comments and ideas.

The gov website linked above makes it sound very straight forward, ie:

"Giving away the home and living in it

If the original owner lives in the home after giving it away, they must pay the new owner a ‘market rent’ (the going rate for similar local rental properties)."

It makes no mention of any need for any other documentation or agreements to be in place just that a market rent needs to be paid to the new owners and so that the 7 year rule will apply. I believe that you don't have to have a written tenancy agreement by law, so other than the normal LL stuff (gas cert, building insurance etc) everything else could carry on as normal.

Evidencing the payment of market rent should be easy enough, however if HMRC want written evidence of tenancy agreements and other things then it becomes more complex.

pjread

Maybe I'm being silly here, but if there's a house under the IHT threshold (on it's own) plus a chunk of investments, isn't there something easier to transfer than the house...? Obviously depends what the investments are and tax positions of people etc.

(assuming everyone trusts each other, which they must to have this plan with the house really)

le_loup

Good thought, could save a lot in IHT.