IHT Query Regarding Property

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Hi All
I have a query regarding IHT. A family member recently lost her partner. They have combined assets of close of £1.5million (of which approx £1.2 million is the property value). Being married, all assets are now in the widows name. Her and her children would like to put something in place to minimise IHT however they cant make up their mind yet. They have already had a quick consultation with a financial planner and walked away knowing their options but cant decide but to go with.
Currently the widow is the sole owner of the property (no mortgage). The 2 children (both single) live with her. She would like to add her 2 children onto the property now so they all have 1/3rd each. She knows the risks of doing this and is happy with it. The reason for adding her children to the property now is to get the 7year IHT timer started (on the value of the property at least). Then she can take a bit of time and decide what she wants to do next in terms of sell the house and downsize or keep the house and maybe rent it out partly etc etc.
My question is. if she were to add her children onto the property deeds (so they all have 1/3rd of the house) today, i assume no rent is payable to anyone as they are all living there. Secondly, if she decides to then sell the house 3 years later (with agreement of 2 children), i assume she is already 3 years into the 7 that are required to be IHT exempt and only 4 years need to pass for that part of her estate to be IHT exempt.
She does not want to hand over the whole property to her children as this entails paying them rent.
Thank you
I have a query regarding IHT. A family member recently lost her partner. They have combined assets of close of £1.5million (of which approx £1.2 million is the property value). Being married, all assets are now in the widows name. Her and her children would like to put something in place to minimise IHT however they cant make up their mind yet. They have already had a quick consultation with a financial planner and walked away knowing their options but cant decide but to go with.
Currently the widow is the sole owner of the property (no mortgage). The 2 children (both single) live with her. She would like to add her 2 children onto the property now so they all have 1/3rd each. She knows the risks of doing this and is happy with it. The reason for adding her children to the property now is to get the 7year IHT timer started (on the value of the property at least). Then she can take a bit of time and decide what she wants to do next in terms of sell the house and downsize or keep the house and maybe rent it out partly etc etc.
My question is. if she were to add her children onto the property deeds (so they all have 1/3rd of the house) today, i assume no rent is payable to anyone as they are all living there. Secondly, if she decides to then sell the house 3 years later (with agreement of 2 children), i assume she is already 3 years into the 7 that are required to be IHT exempt and only 4 years need to pass for that part of her estate to be IHT exempt.
She does not want to hand over the whole property to her children as this entails paying them rent.
Thank you
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She would be far better off making cash gifts that could be used as a deposit for the children’s first homes, and when they move out downsize and make further gifts to get the estate below £1M.
Assuming she is in good health she could also take out term insurance to cover the chance she meets an untimely end before she gets her estate down to the designed level.
The issues start if they move out, gift with reservations and preowned asset taxes can cause all sorts of problems.
there is alos the issue if she has total control over the choices there is a reservation element to the gifts.
Will 1/3 of the property value be enough to cover a downsized property
Absolutely. She is effectively giving her 2 children their share of the house meaning they have a say what happens to it and are entitled to proceeds if sold (and possibly the CGT [for the children] that comes with it). Fully aware of the risks in that respect including if the children were to marry and things not work out etc.
The idea is to first get the 2 children's names on the house, that is the largest value as far as IHT is concerned. Assuming a £1.2million house, it reduces her estate by £800K and brings the total estate value down to £700K. If she downsizes, she would receive £400K from the proceeds of the sale which likely wont get her a downsized property but that's when the the trust element takes over and perhaps her children can help her buy the house she wants (i understand thats adding money back into her estate etc but that's a separate issue).
Key thing i suppose would be to ensure the children are contributing to bills and upkeep etc (which they do anyway). Just to negate the gift with reservation possibility.
Unfortunately, it is possible to make an arrangement that is ineffective for IHT purposes, but does generate an additional CGT charge. I suggest getting a new financial adviser to double check what's being proposed.
Lewis Carroll