Inheriting whole holiday home on Universal Credit

theoretica

Adviceplease1 said:

We're consulting with a tax accountant who've referred the matter to their Director because the Capital Gains Tax and Inheritance Tax are so complicated. It's going to be a calculated gamble based on Dad living at least another 5 years (he's in good health but 81). After that, we're seeing a solicitor.  If anyone knows any good ones in the South West, please PM.

Are you sure they said 5 years?  I would expect 7.  Taper relief is often mentioned (saving part of the income tax if the donor dies less than 7 years after the gift) but I believe that only actually saves tax if the gift were over the nil rate band of 325k.

kaMelo

it isn't as simple as that either, I'd refer the OP back the post from @Keep_pedalling  on how the cottage could potentially be a gift with reservation (PET) thus included in his estate for IHT purposes no matter how long he lived. No one has mentioned care home fees either.
I know the OP posted  asking about the possible effects on benefit qualification but this plan has the potential to backfire spectacularly in many different ways, it is good therefore they are seeking advice from an expert before doing anything.

sheramber

If neither of you have spare cash what happens of the holiday house incurs a large repair/maintenance bill?

You say no bog profits but even a small profit would affect your UC.

calcotti

kaMelo said:

 I'd refer the OP back the post from @Keep_pedalling  on how the cottage could potentially be a gift with reservation (PET) thus included in his estate for IHT purposes no matter how long he lived. 

That was based on the assumption that the donor would still seek to receive the rental income which seems clear is not the case.

kaMelo

calcotti said:

kaMelo said:

 I'd refer the OP back the post from @Keep_pedalling  on how the cottage could potentially be a gift with reservation (PET) thus included in his estate for IHT purposes no matter how long he lived. 

That was based on the assumption that the donor would still seek to receive the rental income which seems clear is not the case.

Really? from what I have read there is nothing mentioned about who will receive the rental income.

calcotti

kaMelo said:

calcotti said:

kaMelo said:

 I'd refer the OP back the post from @Keep_pedalling  on how the cottage could potentially be a gift with reservation (PET) thus included in his estate for IHT purposes no matter how long he lived. 

That was based on the assumption that the donor would still seek to receive the rental income which seems clear is not the case.

Really? from what I have read there is nothing mentioned about who will receive the rental income.

Perhaps I’m being too charitable in assuming that dad would not pass the property to OP together with the associated costs whilst retaining receipt of the rental income given that the rental receipts only just cover the costs.

Brie

First off you wouldn't be inheriting anything if dad gives this to you now.  It would be him gifting it to you.  So there's the whole IHT thing to be considered if he dies within 7 years.  No avoiding that unless he lives for at least 8 years.

But there's also deprivation of assets.....if he needs any help from his local council for care, either in his home or elsewhere, the council will want to know why he's given away the means to pay for that care.  Not an issue if he has bundles of cash somewhere or would sell his main residence.  But if he just ends up with the house he lives in and has little cash they will look elsewhere for ways for him to pay himself.  And that may mean coming to you to sell the cottage even if it has a low relative value.

And then there's still the affect it may have on your benefits....doesn't seem like a good idea all round.

Alice_Holt

Just to repeat my earlier comment.

By gifting the second house (not his principle residence) to you, your father would be liable for any CGT on that transaction.
Has he the resources to settle any arising CGT liability?
(You state - "He's a pensioner with not much money")

 https://www.geraldedelman.com/insights/the-tax-implications-of-gifting-property-to-children/#:~:text=A gift of property is,the receiver of the gift.

And:

https://www.saffery.com/insights/articles/the-tax-implications-of-gifting-property-to-children/

Have his advisers have not already informed him / you of this likelihood (it's quite an important limiting factor to your plans, should he not have the liquidity to settle any CGT).    

Note that the CGT allowance is reducing to £6k on 6/4/23.
For CGT purposes the value of the property at the time of the gift will be it's market value (which you say is c.£250k).
What was it's valuation / date when it passed to your father?

gbhxu

Put the holiday home in a family trust

https://www.moneyhelper.org.uk/en/family-and-care/death-and-bereavement/using-a-trust-to-cut-your-inheritance-tax

Icequeen1

Adviceplease1 said:

Hi everyone, thanks for being kind enough to give up your time with this. All good advice.

It does seem UC would stop and I'd lose the 85% childcare refund and switch to tax credits instead.  If I wait until Sep, one child goes to school and the other gets their age 3 entitlement (30hrs or 24hrs year round). So my childcare costs drop dramatically, Tax Credits cover up to £2K per child and they'd mostly cover this.

In my universal credit journal, they're being weasly saying 

"I have spoken to a decision maker and it is simply not possible to make a decision and give you 
an answer on hypothetical questions. 
The circumstance must take place so the decision maker has all of the accurate information required 
to make a sound decision. There is a large information gather required before a decision is reached and 
that is based solely on the individual claim as not everyone's circumstances are the same." 

But I think that's wrong (they've been wrong before!) and the people on here are right that UC would end. It's not a hypothetical question based on my personal circumstances, it's a fact that if your share in a second property is worth more than £16,000 you don't get Universal Credit, right?!

The Welsh cottage doesn't make any profit, but we really want to keep it because it has high sentimental value (built by my ancestors 7 generations ago). It's in a remote area, I couldn't live there due to lack of work. So I want to keep that, and my current house.

This is it in a nutshell "The OP would need to make a decision whether it is more beneficial to take the house now and suffer a loss of UC (between now and whenever they may otherwise inherit the property upon death) that may be offset by any saving in inheritance tax."

Since my U/C non childcare element is only around £180pm (after P/T wages), and the IHT 'taper relief' would save around £20K if Dad lives another 3 years, it does seem sensible to do the transfer now.  When both kids are at school (Sep 24) I could work F/T and then not be getting UC anyway.

We're consulting with a tax accountant who've referred the matter to their Director because the Capital Gains Tax and Inheritance Tax are so complicated. It's going to be a calculated gamble based on Dad living at least another 5 years (he's in good health but 81). After that, we're seeing a solicitor.  If anyone knows any good ones in the South West, please PM.

Thank you for the very smart and intelligent answers.

As already mentioned, it sounds like you are talking about tax-free childcare not tax credits. I'm not sure from your wording whether you have fully understood how it works - you only get 2k if you pay in 8k. It is a top up scheme. It sounds like you might be thinking you will get 2k and that will cover most of your costs when they reduce?