Gifting of property equity and IHT 2 February at 10:43AM in Cutting tax 2 replies 161 views

davewood5258

I am trying to determine what arrangement is necessary to make a gift of part of the equity in my property to a grandchld to make the gift a PET(partially exempt transfer).
HMRC give written guidance on the treatment of the whole of the equity,by paying market rent to the granchild,but fail to give any guidance ,written or verbal,on the treatment of part equity gifting.There can really only be 3 answers

-you need to pay the full market rent

-you need to pay a pro rata rent based on the value of the gift and the the full market value

-there is no need to pay rent as I am still part owner,and continue to live in it.

Any help would be much appreciated

Keep_pedalling

If you continue to live in the property then, unless your grandchild also lives there, it will be treated as a gift with reservation of benefit so the the 7 year rule does not apply. You should also be aware that if your grandchild is not already a home owner the gift would take away their first time buyer status, so will cost them additional stamp duty when they buy their first home, plus an additional 3% as they will be buying a second property.

if you want to make gifts to reduce IHT then do it with liquid assets not your home. Are you sure your estate would do be subject to IHT. What would the value of your estate be if you died tomorrow? How much of that would be down to the value of your estate? What is your marital status? 

Jeremy535897

A PET is a potentially exempt transfer, not a partially exempt transfer. It is possible to make a gift of part of your home to an adult grandchild, but you have to pay a market rent. Working out what that is where a jointly held property is concerned is not straightforward, and if you get it wrong, the value of the house remains entirely in your estate for inheritance tax purposes. Also, each of you would have to pay their fair share of any upkeep costs. As noted above, it is "last resort" planning, and doing almost anything else is better. It creates taxable income for your grandchild, and his share will neither qualify for main residence relief, nor a capital gains tax free uplift on your death. If he were to live in the home with you, a lot of the problems reduce (no rent would be necessary), although a fair sharing of upkeep costs might still be necessary to avoid the POAT charge.