Inheritance tax and renting

saintalan

Bonesbrigaded wrote: »

...
I have an elderly but healthy relative who is keen to work with me to avoid paying iht unfairly on their main home while continuing to live in it. ...

the house isn't really set up for two, ...

rented the majority of the house out to a stranger a...

I find this a fascinating case, it's always easy for us to judge people's motives but we don't always have the full facts.

I think this is more of CGT issue than an IHT one.

There is probably another property involved and we dont know the main residency period of that (if there is one) and the current.

Also bit unclear how you can rent to a stranger when house not set up for 2? Assume that the current owner/occupiers is 2 or more?

Thanks

Alan

getmore4less

Bonesbrigaded wrote: »

We've looked at lots of different options including selling, but they are not keen to either move or pay capital gains on the sale. As an added complication they are also subject to overseas tax law making a sale even less attractive.

These two issues will need expanding on.

Mojisola

Bonesbrigaded wrote: »

I have an elderly but healthy relative who is keen to work with me to avoid paying iht unfairly on their main home while continuing to live in it.

Why is it unfair to pay IHT on a large estate?

It won't happen until after the relative is dead so it won't affect him.

agrinnall

Mojisola wrote: »

Why is it unfair to pay IHT on a large estate?

It won't happen until after the relative is dead so it won't affect him.

Exactly the point I was going to make.

Keep_pedalling

Whatever options are taken, the one person who won't benefit is the OPs relative who will never pay IHT. Their priority should be to make sure that they can live to a ripe old age in security and comfort. If it comes to it and they need high quality long term care in their latter years then they should be holding on to their major assets to make sure that is possible.

They really should be talking to some independent financial / tax advisors, not relying on relatives with vested interests.

zygurat789

Bonesbrigaded wrote: »

. We've looked at lots of different options including selling, but they are not keen to either move or pay capital gains on the sale. As an added complication they are also subject to overseas tax law making a sale even less attractive.

Why might CGT be payable?
Why is overseas tax law an issue, is this USA?

Ne5555

What happens if you die before them?

saintalan

It is not uncommon on here for new posters to drip feed info as they feel necessary.

This is fine but a lot of members then try to help but with moving info.

This sounds like the OP needs to either accept the info given or tell the whole story so that someone can both help him and help others learn.

Alan

Bonesbrigaded

Hi there, sorry for drip feeding, on business trip this week but will try to respond to all the questions. It is a complicated situation and I was trying to simplify it to ask my question, which is :

Do you see any legal issues with the idea of me renting the house to a 3rd party while they are living in it (clearly with their backing and consent) while the house is subject to a potentially exempt transfer (pet) for seven years? Bearing in mind that if the owner is seen to have benefited from the house at anything better than market rate that would be ' reservation of benefits ' and tax would be owed. Any help with thisquestion (putting aside the details) very much appreciated.

Ok, back to the questions!

Us/cgt/sale

We have sought independent advice as they are a us citizen and us tax is payable no matter where your residence is. There is also an ' exit tax ' if you renounce your us citizenship of roughly 40% on major assets.

We have been advised that there is likely to be cgt payable on a sale due to us law, and in any case they are really keen to remain in the house so don't want to explore this option.

They are taking independent advice and I often tell them to get more. I'm just helping.

Attic/rentability

I've raised the issue of stairs lots of times and was against loft conversion but they were keen to do it and think it will be OK with eg stairlift. They are very opinionated and it is their life so I don't want to get too prescriptive.

They've lived alone in the house for c. 30 years.

It would be possible to rent as there is a kitchen and bathroom in top floor, it's just not my ideal set up and id prefer not to live there if there is a choice. Someone who had rented it would have decided they were ok with the arrangement so seems better.

There is no other property. I own my house but not really relevant.

Iht not unfair / why are they bothering

They are very keen on saving money, much like the members of mse.com they've always been frugal and feel that ' wasting' a large amount of money at end of life would be a bad thing. There are exemptions set up to try to allow the family home to be passed on without excessive taxes. (recognise what is ' unfair ' a matter of opinion!) they want to leave as much as poss as their legacy to their family. And, if some of the funds are unlocked early there could be scope for them to enjoy in creative ways.

I'm much younger than them, so unlikely to die first (I hope!)

Hope that covers all the questions, thanks for your help so far!

getmore4less

What floor is the attic on?

There may be building regs/fire issues with this being rented as a self contained unit.

In the UK you can sell part of a house to become joint owners.

would half(or other part share) of the house fall under the US gains exclusion(every 2 years) limit.