Gifting property

Im-Blue

Hello

Just after some general advice here I'm well aware will need legal advice to get this ball rolling but all parties have some reservations about this situation whether to even bother to get started.

So me and partner are going to be divorcing. We have two children. Although I'd be entitled to stay in our property, it is large and I couldn't afford the bills on my own as I work part time. Although he'd pay maintenance, I'd also want him to be financially stable to have a home suitable for when he has the children. I have no intention of "taking him to the cleaners" I just want half of the property we have both contributed to.

My dad is 70 and single, he rattles around in a 3 bed house that he owns outright and wants to downsize.

He has offered to gift me his home for me and my children to live in. I'm not sure of exact valuation of his home but let's say for example sake it's 400k. He initially said keep my profit from house sale back for renovations, but on thinking about it I'm more likely to give him 100k from half of the sale of my home, to go towards him buying a smaller place with his remaining cash. He would end up with an approx 300k smaller property himself, whilst "gifting" me 300k of his house.

This is all well and good if he doesn't pass away in the next 7 years in which case tax wouldn't be payable on this gift of 300k, and the property he will downsize to would essentially be left to my brother in his will, which evens out the inheritance to make it fair, I'm just benefitting from it beforehand, and as the new property will be below the threshold for I.T, it's unlikely there will be much to pay once all his assets are calculated

but, he has just had surgery for cancer and has other ailments so it's not entirely unreasonable to think that he may sucumb in this time frame of 7 years,he also thinks this too.

My question is, should he pass away with 7 years I know that the gift would be included first for the I.T. threshold, and the remainder being taxed at 40%, would the whole 300k gift be included first, or would it be tapered to less (as would the tax be tapered depending on what year he died), because in this case all the tax would be applied to his new property as it will fall above the threshold, which would mean we would have to sell new property to pay the tax (which means my brother has actually ended up with less inheritance) or I would have to take out a mortgage to pay for my half of the tax bill.

Would it be better to not buy his home for 100k and not accept the 300k gift, and just live there and pay him rent, until which time I would inherit the home which may fall under the 500k threshold for I.T. but his new property would also need to be subjected to inheritance tax... So same situation I guess.

I just don't want to be in a position where, on his death, I'm having to take out a 100k mortgage to pay inheritance tax, when I have already given him 100k to go towards buying a new home.

Should I not give him the 100k and keep this back for IT? He hasn't asked for this money on the offset as his house is very run down and would need around 50-75k worth of work done (yes it's that bad!), I just thought it would make the transaction easier, him gifting me 300k yet having 300k left (100k of which was mine) to leave to my brother.

Feel like such a morose money grabber even asking these questions, but this is all on the back of my dad's very generous offer, I just don't know what to make of it.

getmore4less

lets clear up one point.

There is no extra IHT for your dad gifting you £300k  
its the same tax as if he had not gifted(which may be zero anyway) it drops off after 7 years, no taper on £300k gift

Any transferable nil rate bands to take his nil rate total up

Im-Blue

getmore4less said:

lets clear up one point.

There is no extra IHT for your dad gifting you £300k  
its the same tax as if he had not gifted(which may be zero anyway) it drops off after 7 years, no taper on £300k gift

Any transferable nil rate bands to take his nil rate total up

I cant quite word what my question is

Say he gifts me 300k and dies 6 years later. Meaning as part of tapering, I'd be liable to pay 8% gift tax on that 300k.

I have also read, though, that gifts are included FIRST when calculating the threshold before paying IHT.

So if he died in 6 years time , and the 300k gift is included first in the £325k threshold, then am I paying 40% IHT on everything over the 325 (therefore not benefitted from this tapering off anyway as it's made the gift part untaxable as it falls beneath the threshold)

I'd rather his new property be calculated first and be under the threshold and then pay the 8% gift tax on the 300k gift! But apparently that's not what they do

RAS

Is your dad never married, previously married or widowed? Makes a big difference to the IHT liability.

Do you understand the basic nil-rate allowance and the residential nil-rate allowances for IHT?

And what you you mean by "gift tax?" Because there isn't one in the UK, so just checking that is where your dad lives?

Thrugelmir

Google deprivation of assets. Needs to be considered carefully. 

Keep_pedalling

He would be extremely foolish to gift his home to you, unless he has significant other assets.

getmore4less

There is no tapering on a £300k gift.

doodling

Hi,

I agree that you need legal advice from someone with a good awareness of the issues around taxation and deprivation of assets.  It sounds like your Dad has sufficient assets to avoid deprivation of assets issues even if he made a gift to you but if he did need care then it is likely that the costs would come out of the value of the house which would be left to to your brother - that might not be very good for him.

Often it is easier to avoid any significant gifts - for example, you could buy a share in your Dad's current house and he could allow you to live there rent free whilst using the money from you to buy his new house or renovate the old. Obviously if you do this there is the risk that when he passes away your share of the estate is not big enough to support your ownership of the house and you need to find some more money or move out.

I think professional advice is a must. Once you have a plan it might be worth running it past your brother - you don't want to to set something up that leaves him hating you when your Dad passes away.