Gifting problems (big problems!)

silvercar

I understand what they are trying to do.

To avoid IHT, they give the property to their daughters now and pay market rent. Then they just need to live 7 years and the house isn't included in the estate.

I assume they are cash rich if they are happy to pay rent forever at market rent. Also there must be considerable other cash/ property/ shares to make this all worthwhile.

The easiest answer is for rent from now going forwards to be set aside to pay for repairs.

Undoing this transaction would mean CGT to pay. There is already a liability for income tax on the rent received.

I don't think this was the best way forward. With a large amount of money at stake, professional advice should have been taken. There are policies that could have been taken out, intended to cover the tax due on the estate. No doubt these would have worked out cheaper than paying market rent.

Pennywise

Person_one wrote: »

Gift is a noun, give is a verb. You can give a gift, you don't gift a gift, you gave your share to your son, even if the badly written paperwork says you 'gifted' it!

I realise it's in common usage now, but it's still really annoying!

It's nothing to do with correct English or common usage. The words "gift" and "gifted" have specific technical meanings in the tax world and are specifically called thus in the tax legislation. It's not "badly written paperwork" - it's technically correct paperwork.

Pollycat

silvercar wrote: »

I understand what they are trying to do.

To avoid IHT, they give the property to their daughters now and pay market rent. Then they just need to live 7 years and the house isn't included in the estate.

I assume they are cash rich if they are happy to pay rent forever at market rent. Also there must be considerable other cash/ property/ shares to make this all worthwhile.

The easiest answer is for rent from now going forwards to be set aside to pay for repairs.

Undoing this transaction would mean CGT to pay. There is already a liability for income tax on the rent received.

I don't think this was the best way forward. With a large amount of money at stake, professional advice should have been taken. There are policies that could have been taken out, intended to cover the tax due on the estate. No doubt these would have worked out cheaper than paying market rent.

Then why are they living in a house that sounds like it's in a right state?

Keep_pedalling

They definitely need professional advice to sort this mess out. Apart from any CG issue, they are in the interesting position of having this house form part of the estate of both the parents and the daughters, and it will still be the case for 7 years if they hand it back, so the daughters own estates may now fall within IHT territory.

I can't believe the parents are cash rich, otherwise why have they let their house become so run down, and why did they not gift liquid assets instead of the house. They may well have a decent pension income that allows them to pay the rent (although not enough to pay full market rates it seems).

They are now very vulnerable if that is the case, if one of them dies it may mean they can pay even less rent, and if the survivor needs care the issue of deprivation of assets comes into play. What happens if one of the daughters dies first, gets divorced or goes bankrupt.

If no one can really afford to pay to repair the place, it should be sold and enough of the proceeds given back to the parents to buy themselves a smaller more manageable home. What remains can stay with the daughters who can settle any CG in income taxes that have arisen from this Byzantine transaction.

Rain_Shadow

New poster, joins, immediately posts contentious question as their first post and logs out the instant they have posted and has not logged in since.


Hmmmmmm.

enthusiasticsaver

Goodness what a mess. I am assuming the parents have a limited pension so cannot afford the home repairs. The daughters are liable for tax on the income they have been receiving and obviously instead of giving them £1000 per month this should have paid for the repairs. If they no longer have any of this the rent going forward should pay for it. If the house has gone up by £80k then yes there will be capital gains to pay. Professional advice is needed re the tax situation and obviously there will be costs putting the property back into the parents names.

I would suggest selling the property and buying something more manageable for the parents. If parents don't want to move then daughters can remortgage to release equity to do property up to lovable condition. As others have said if the rent is below the market rent then the parents still have a beneficial interest so it remains in estate anyway.

Person_one

Pennywise wrote: »

It's nothing to do with correct English or common usage. The words "gift" and "gifted" have specific technical meanings in the tax world and are specifically called thus in the tax legislation. It's not "badly written paperwork" - it's technically correct paperwork.

Something can be technically correct but still mangle the language!

southoftheriver

Seriously get over it. Language evolves.

euronorris

Person_one wrote: »

Gift is a noun, give is a verb. You can give a gift, you don't gift a gift, you gave your share to your son, even if the badly written paperwork says you 'gifted' it!

I realise it's in common usage now, but it's still really annoying!

Grammatically I would agree with you. However, in the world of financial advice (and in this case specifically IHT), the term used is gifted.


Gifting the house, in the way they have, has not achieved their goal anyway. Paying under market value for the rent, as others have mentioned, means it will still be viewed as a 'gift with reservation' and therefore remains within their estate for IHT calculation purposes.


I would strongly advise that the OP, and her parents, get some professional advice this time in order to rectify the matter. Advice up front would have cost them, but would have saved them more in the long run and helped them to achieve their goals more efficiently.

Reggie_Rebel

Parents own house
Parents give/gift house to daughters
Parents pay rent
Daughters carry out no maintenance leaving house a slum
Parents wonder where they went wrong