Parents passing home to children whilst still alive

mark-o-polo

Hi,
My in-laws are looking into the possibility of selling their house and gifting the money to my wife and her sister. I've tried to research possible IHT implications online, but would be grateful if someone could confirm my understanding is correct!
The house is worth around £230k and is their only residence. Both parents are currently alive. 
As I've interpreted it, if they sold the house and gifted the money to their 2 daughters, and lived a further 7 years, there would be no IHT to pay.
If they signed the house over but continued to live there, I understand they would have to pay rent at the going rate. 
If the worst was to happen and they passed away within the 7 year period, am I correct in saying the value would be under the IHT threshold anyway?
Thanks in advance and if I've missed any glaring obvious details please let me know.

-taff

Your wife or her sister may become bankrupt and the house would be sold as they own it, the children and the parents might fall out and they could sell the house from under them without a problem, they could be investigated for deliberate deprivation of assetts if either of them needed a care home.

Savvy_Sue

Why do they want to do this? 

They need to get proper advice - and not from some company offering ways of avoiding IHT and care home fees. 

Linton

It seems very unclear what a gift would be intended to achieve.  As you suggest, if their assets are little more than a £230K house there would be no IHT to pay were the parents to die within 7 years irrespective of whether the gift is of money or a house or if the did not make any gift at all.

If the parents sell and gift the money where will they live?

If the parents need council assistance with care fees the council could refuse to pay under "deprivation of assets" which could leave the parents in the very difficult situation of being required to fund their own care but not being able to afford it.

The parents would need to consider all the "what if" scenarios. In the case of gifting the house but continuing to live in it what happens if your wife and/or your sister die, divorce, or become bankrupt?  Their asset, the house, may need to be sold leaving parents homeless.  Perhaps they could all just fall out and eject the parents. The point is that the parents would have no security at all.

Giving away your own home in my view is foolish and pointless.  I suggest you persuade them to give up any such idea and say that any inheritances should be left until after the parent's death.

mark-o-polo

Thanks for the replies. Their intention is that they would like to see their daughters have the benefit of the gift, whilst they ( the parents) are around to see/enjoy it, rather than after their death. In terms of living arrangements, they are looking at the possibility of living with one of their daughters in a large house / house with annex, or possibly downsizing to a smaller property.
From the above, I guess deprivation of assets would have to be a consideration, although neither of the parents are in ill health or anywhere near the requirement for a care home (I appreciate this is something that could change rapidly/unexpectedly).  

Dox

mark-o-polo said:

Thanks for the replies. Their intention is that they would like to see their daughters have the benefit of the gift, whilst they ( the parents) are around to see/enjoy it, rather than after their death. In terms of living arrangements, they are looking at the possibility of living with one of their daughters in a large house / house with annex, or possibly downsizing to a smaller property.
From the above, I guess deprivation of assets would have to be a consideration, although neither of the parents are in ill health or anywhere near the requirement for a care home (I appreciate this is something that could change rapidly/unexpectedly).  

Have they asked their daughters if that is what they (the daughters) would like? 

Keep_pedalling

Sorry but this is a terrible idea. It sounds like  the house is their only major asset, in which case IHT is never going to be an issue.

Apart from the DOA issue, they would also be risking their long term security. What happens if their children run into financial difficulty, get divorced or die before their parents? All of those things could see them homeless.

lisyloo

The choices of free care in later life are very poor and no guarantee they’d be close or even together. Local authority wanted to split up my MIL & FIL when rooms were available in the same home after 60 years of marriage.
if it was me I’d want the, to keep the money for care.
some people need 24/7 care especially if they are unable to make safe decisions and some need 2 careers for example if they need to be hoisted.
the fact that they are healthy does not mean they won’t suffer from dimensia if they live a long time.

jjimjam

Seeing as you are concerned with IHT and a residential property and no one has mentioned it - are you aware of the "residence nil rate band"?  Depending on other assets, selling & gift may result in more IHT.

Malthusian

jjimjam said:

Seeing as you are concerned with IHT and a residential property and no one has mentioned it - are you aware of the "residence nil rate band"?  Depending on other assets, selling & gift may result in more IHT.

Although downsizing relief may apply in that situation.

It appears to be irrelevant to the OP's in-laws anyway as the estate is well within the conventional NRBs, unless they have substantial assets they aren't telling us about.

As others have said, this is a seriously terrible idea which appears to have sprung out of a misconception that they are subject to IHT when they are not.

They can always sell the house, downsize / move into a granny annex and give some of their cash to their children to enjoy if that's what they want, while retaining enough to meet their own needs, including potential care costs.

What do the daughters need the money for? The in-laws need a roof over their heads (now and in the future), it's not clear why the daughters need that capital more than they do.