Can my mother gift her house?

Grazl

My father died earlier this year and my mother is now moving to a small cottage nearer to my sister. She is in the process of purchasing this property and does not need to sell her current house to finance it

As a family we have agreed that my mother will sell her house to us at a big discount (the value of our current house). Her house is worth £500k, ours is worth £300k so she will be effectively gifting us £200k. She would then give £200k of the £300k to my sister to ensure both children have been treated equally

I know there are IHT implications but what is the most tax efficient way of completing this arrangement. I am assuming my mother can gift us her house (therefore avoiding stamp duty), and when we sell our house I can give £200k to my sister and £100k to my mother as gifts?

G_M

Yes, inheritance tax on the value of the gifts if she dies within 7 years.

SDLT on the amount you pay her for the property. So if you pay her £500K that is taxed.

If you then give £200K to your sister you'd need to convince HMRC that this was in fact a gift from mother - not sure the best way so I'd discuss with a solicior/conveyancer.

If she gifts you the entire house, but you agree to later give her £100K & £200K to sister, this is a linked transaction and is clearly 'consideration' for the house. Trying to avoid SDLT in this way would be tax evasion (illegal) as opposed to 'avoidance'.

Although you could DIY the transfer of the property into your name (TR1, AP1, ID1), I would seriously advise you get professional advice in view of your proposed fraud.

stator

You need professional tax advice

Grazl

Thankyou, I'm not trying to commit fraud hence my question. I suppose in light of what you are saying we should be looking to buy my mother's house for the same value as our house and therefore stamp duty would be due on £300k instead of £500k?

G_M

Grazl wrote: »

Thankyou, I'm not trying to commit fraud hence my question. I suppose in light of what you are saying we should be looking to buy my mother's house for the same value as our house and therefore stamp duty would be due on £300k instead of £500k?

That appears to be the real price you will pay, yes. Your mother will be £300K better off after selling her property. You will be £300K worse off. SDLT should be based on that.

Inheritance tax (7 year rule) will be based on the cash amount gifted to sister (£200K), and the difference in market value and actual price paid (£200K) gifted to you.

Cheeky_Monkey

I'm guessing that Deprivation of Assets wouldn't apply in this case as your mother could just sell the cottage to pay for any care home fees if it ever became necessary and she's unlikely to be applying for any means tested benefits

booksurr

Cheeky_Monkey wrote: »

I'm guessing that Deprivation of Assets wouldn't apply in this case as your mother could just sell the cottage to pay for any care home fees if it ever became necessary and she's unlikely to be applying for any means tested benefits

no, the 200k discount is indeed a deprivation of capital for mother as she no longer has that money

however, as you say, no one on here can say if it will ever matter as we don't know if she will need to make a means tested benefits claim

Browntoa

yes, would be deprivation of assets

Cheeky_Monkey

booksurr wrote: »

no, the 200k discount is indeed a deprivation of capital for mother as she no longer has that money

however, as you say, no one on here can say if it will ever matter as we don't know if she will need to make a means tested benefits claim

I stand corrected :beer:

kinger101

You need professional taxation advice on this. The IHT rules are undergoing a radical overhaul.

http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/11722864/Budget-2015-How-inheritance-tax-changes-might-affect-you.html