IHT quandary

Snige65

Hi,
My elderly father moved in with us nearly 3 years ago, we subsequently sold his property. My father paid for an extension to be added to our property for him to live in. I have been his fulltime carer since taking redundancy over 3 years ago.
My concern is that if my father had remained in his property with as I understand a zero IHT bill due, as of the extra allowance for the property.
Now all of his assets are cash and over the IHT threshold will we have to pay IHT on the excess or is there still an allowance as most of it was from the property?

getmore4less

The residential nil rate band has downsizing rules which will include the move into your place.

Was the payment for the work done as a gift a loan or a share of equity?

Don't forget transferable nil rate bands if there is a previous deceased spouse.

Snige65

To be honest there was no decision as to whether it was gift/loan, not considered a share in the equity.
No transferable nil rate as parents divorced years ago.

xylophone

If there was no loan agreement, your father paid for the extension and is not on the deeds as a co owner of the property, then it seems that the money paid for the extension was a gift to you.

Below may be worth a look.

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Keep_pedalling

You will still be able to claim the RNRB as you are allowed to sell up totally to move in to residential care or to the care of a relative as is the case here.

For IHT purposes his estate comprises of all his current assets plus the amount he gave you to build the extension. I believe this would be classed as a gift with reservation, as he is is living in the extended house, so the 7 year rule dues not apply here, unless he has been paying you full market rent all this time.

xylophone

unless he has been paying you full market rent all this time.

Or possibly paying his full share of household expenses?

Keep_pedalling

xylophone wrote: »

Or possibly paying his full share of household expenses?

I don’t think that would hack it, otherwise you could get away with continuing to live in a house you gifted, simply by paying all the household expenses.

xylophone

I don’t think that would hack it, otherwise you could get away with continuing to live in a house you gifted, simply by paying all the household expenses.

But the situation would be akin to that described below?


https://www.moneywise.co.uk/work/tax/can-i-gift-half-my-house-my-child-cut-inheritance-tax

This is known as a ‘gift with reservation of benefit'.To avoid this you would need to pay your son fair market rent for living in the house. Your son may then be liable for income tax on this rent. However, if your son lives with you and shares the bills, the proportion given away won't be included in the valuation of the estate.

Keep_pedalling

xylophone wrote: »

But the situation would be akin to that described below?


https://www.moneywise.co.uk/work/tax/can-i-gift-half-my-house-my-child-cut-inheritance-tax

This is known as a ‘gift with reservation of benefit'.To avoid this you would need to pay your son fair market rent for living in the house. Your son may then be liable for income tax on this rent. However, if your son lives with you and shares the bills, the proportion given away won't be included in the valuation of the estate.

The main difference between the example in the link and the OPs situation is that the example given the house is jointly owned rather than as in the OPs case the father owns none of it.

I think professional advice should be sort.

getmore4less

That article has flaws with CGT and no mention of PET status of the gift.

The main measure is not continuing to benefit from the GIFT, 2 people in the house they benefit from 1/2 each so 1 owner can give 1/2 away as a PET not a gift with reservation.

PRR kicks in on disposal(gift) and subsequent sale ifson lives there.