Does a spouse 'inherit' a gift with reservations

MHem

Hi. I have a situation which must have happened before but I can't easily find an answer. My parent gift their house to me and my siblings eight years ago. They did not pay rent. My father recently died so his share of the house is part of his estate as a gift with reservations. He left everything to my mother in his will. Does this mean that she is now the sole beneficial owner, that we, the children, inherit half the house (and therefore inheritance tax is due) or that we, the children, inherit all of the house (and inheritance tax is due)? Or, of course, another arrangement that I have not realised? Thanks

RAS

Your father can't leave a house to his wife if they have already gifted it to their children.

It might be sensible to download the deeds from the Land Registry for confirmation of the arrangement, for £3 not one of the rip-off duplicate sites.

Keep_pedalling

Gifting you home is a pretty silly thing to do and although it still counts as part of his estate for IHT purposes it is no longer his to gift as part of his estate, so your mother will not inherit it. Should she need residential care in the future the gift will almost certainly be treated as a deliberate deprivation of assets.

if their house was worth more than £1M 8 years ago then the gift will have eaten up all his NRB and RNRB and IHT will be due now.

Mojisola

Keep_pedalling said:

Gifting you home is a pretty silly thing to do and although it still counts as part of his estate for IHT purposes it is no longer his to gift as part of his estate, so your mother will not inherit it. Should she need residential care in the future the gift will almost certainly be treated as a deliberate deprivation of assets.

If the father owned the house and gave it to the children, there was no deprivation of assets on the mother's part.

RAS

Depends whether he gifted the house or whether they gifted the house.

Keep_pedalling

Mojisola said:

Keep_pedalling said:

Gifting you home is a pretty silly thing to do and although it still counts as part of his estate for IHT purposes it is no longer his to gift as part of his estate, so your mother will not inherit it. Should she need residential care in the future the gift will almost certainly be treated as a deliberate deprivation of assets.

If the father owned the house and gave it to the children, there was no deprivation of assets on the mother's part.

The OP needs to clarify the ownership prior to the gift, they said their parent gifted their house, so either meant gifted his house or parents gifted their house.

If it was owned solely by the OPs father then yes DDoA does not apply, but there could be an immediate IHT issue if the house is worth more than £500K, and if the OPs mother ever wants to downsize there is likely to to be a CGT issue on sale of the current property. Whatever the situating gifting your own home is always a dumb thing to do.

Marcon

MHem said:

Hi. I have a situation which must have happened before but I can't easily find an answer. My parent gift their house to me and my siblings eight years ago. They did not pay rent. My father recently died so his share of the house is part of his estate as a gift with reservations. He left everything to my mother in his will. Does this mean that she is now the sole beneficial owner, that we, the children, inherit half the house (and therefore inheritance tax is due) or that we, the children, inherit all of the house (and inheritance tax is due)? Or, of course, another arrangement that I have not realised? Thanks

Time for a chat with a solicitor, armed with all the information about the house being gifted to you and a copy of your father's will. The wording and who exactly did what, and when, could be crucial.

MHem

Keep_pedalling said:

Mojisola said:

Keep_pedalling said:

Gifting you home is a pretty silly thing to do and although it still counts as part of his estate for IHT purposes it is no longer his to gift as part of his estate, so your mother will not inherit it. Should she need residential care in the future the gift will almost certainly be treated as a deliberate deprivation of assets.

If the father owned the house and gave it to the children, there was no deprivation of assets on the mother's part.

The OP needs to clarify the ownership prior to the gift, they said their parent gifted their house, so either meant gifted his house or parents gifted their house.

If it was owned solely by the OPs father then yes DDoA does not apply, but there could be an immediate IHT issue if the house is worth more than £500K, and if the OPs mother ever wants to downsize there is likely to to be a CGT issue on sale of the current property. Whatever the situating gifting your own home is always a dumb thing to do.

Thanks for the replies so far.
They gifted the house. It was jointly owned. Another reply questions the value: the whole estate of both my parents would probably fall within the joint allowance but the house alone would be over an individual's allowance. I don't understand the status of the house wrt inheritance tax. Is it considered wholly part of my father's estate or just half? This of course has ramifications for my mother too, in both her continued occupation and her eventual estate.

Keep_pedalling

MHem said:

Keep_pedalling said:

Mojisola said:

Keep_pedalling said:

Gifting you home is a pretty silly thing to do and although it still counts as part of his estate for IHT purposes it is no longer his to gift as part of his estate, so your mother will not inherit it. Should she need residential care in the future the gift will almost certainly be treated as a deliberate deprivation of assets.

If the father owned the house and gave it to the children, there was no deprivation of assets on the mother's part.

The OP needs to clarify the ownership prior to the gift, they said their parent gifted their house, so either meant gifted his house or parents gifted their house.

If it was owned solely by the OPs father then yes DDoA does not apply, but there could be an immediate IHT issue if the house is worth more than £500K, and if the OPs mother ever wants to downsize there is likely to to be a CGT issue on sale of the current property. Whatever the situating gifting your own home is always a dumb thing to do.

Thanks for the replies so far.
They gifted the house. It was jointly owned. Another reply questions the value: the whole estate of both my parents would probably fall within the joint allowance but the house alone would be over an individual's allowance. I don't understand the status of the house wrt inheritance tax. Is it considered wholly part of my father's estate or just half? This of course has ramifications for my mother too, in both her continued occupation and her eventual estate.

Assuming they originally held the property 50/50 then yes half the value of the house at the time of the gift is subject to IHT and the same will apply to your mother on her death. See IHT form IHT500. You also have the potential issue of deliberate deprivation of assets if she ever needs residential care.

As this gift was made prior 8th July 2015 I believe neither estate can claim the resident NRB. 

xylophone

They gifted the house. It was jointly owned. 

This was a formal transfer of ownership to you and your siblings and you and they are now shown as proprietors at the Land Registry?

If so, then from the moment of the transfer, your parents no longer had any ownership rights in the property.

Neither your father nor your mother could leave the property in their wills because  neither  could bequeath an asset that  he/she no longer owned.

The transfer of the property was a gift with reservation of benefit and your father's share of the gift will need to be reported when you seek probate.

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm04071

It may be that IHT is due and may be due again on your mother's estate.

In addition, there will be CGT  considerations when you and your siblings come to sell the property.

getmore4less

the issue here is 2 fold.

The fathers gift with reservation uses up(some/all) his £325k nil rate band

There is no residential nil rate band available.

They no longer have a qualifying property and cannot use the downsize rules because the gift was before 8 July 2015