Inheritance Tax Query - Gifts with Reservation and Pre-Owned Assets Tax

Pablothedreamer

Wondering if you can help please anyone. My father-in-law is elderly and is selling his property and moving in with us. To provide enough room for him, he is using some of his property proceeds to extend our house. He will be mostly living in the extended area, which consists of a bedroom and small shower room/toilet (which we had previously as our converted attached garage) and a living room/kitchenette behind it (the extension), all linked to the main house via an internal door (currently with no lock). 
I initially assumed that the money for the extension would be a PET. However, I now believe it will be likely be within the POA regime and could be taxed based on the deemed rental benefit of him living with us. My father-in-law is unlikely to be above the IHT threshold, so I think it likely that we will make an election to treat the gift as GWROB. 
My questions are:

1. Does this sound technically correct?
2. The intention is that the monies for the extension won't form part of the estate for the purposes of eventual distribution to beneficiaries. Does the fact that it will be a GWROB mean that it is only deemed to be in the estate for calculating IHT, or does it mean it actually is in the estate to be distributed? The reason I ask this is we don't want our extension to eventually partly belong to other family members, so we'd want to review the will if that is the case. 

Many thanks for any assistance.

Linton

On question 2…..

The classification of gifts for IHT purposes and for determining the distributable estate are different. For the latter what is important is who owns the assets.

I assume your FiL is effectively giving you the money which you are spending on extending your house and FiL will not be given part ownership of the house. In that case the money given and therefore the house extension are your property and will not be part of FiL’s distributable estate.

As you suggest the IHT view on the situation could well be different.

Pablothedreamer

Thanks @Linton. That was my thought until I read an article by the guardian entitled can parent pay house extension (can be googled, I'm not able to post links yet as I'm still an MSE forum noob. The solicitor seems to think its an issue. I'm heartened that you don't though.

Linton

Pablothedreamer said:

Thanks @Linton. That was my thought until I read an article by the guardian entitled can parent pay house extension (can be googled, I'm not able to post links yet as I'm still an MSE forum noob. The solicitor seems to think its an issue. I'm heartened that you don't though.

As far as I can see, the guardian article does not mention ownership of the assets except as a possible side effect of avoidance of income tax from pre-owned assets which I guess would involve your father-in-law buying a share in the house rather than living there for free.  In that situation his part of your house would obviously be counted as part of his estate.

However I am not a lawyer so you should take advice from your solicitor rather than an unknown on the internet.  It would be interesting to know his argument.

Pablothedreamer

Yes, that won't be the situation. It will be something in the middle where we elect for the monetary gift to be treated like the gift of the property with reservation. Nowt is straight forward! 🤣