parent transferring their property to 1 child out of 3 - 7 year rule

auroras_answers

Keep_pedalling said:

Also if you mother inherited all of your father’s estate then her estate would need to exceed £1M before IHT was even an issue. 

are you able to explain a bit more on this please @Keep_pedalling as i am not sure what it means - does it mean there would be no IHT due on my mum's estate as she has already inherited it from her deceased husband? if so, i did not know about this. the property was initially jointly owned (by mortgage) and with his death in service payout, she paid off the mortgage. she has other money saved i.e. his pension but no other funds in property, and the cumulative total does not exceed £1m. thank you. 

Keep_pedalling

auroras_answers said:

Keep_pedalling said:

Also if you mother inherited all of your father’s estate then her estate would need to exceed £1M before IHT was even an issue. 

are you able to explain a bit more on this please @Keep_pedalling as i am not sure what it means - does it mean there would be no IHT due on my mum's estate as she has already inherited it from her deceased husband? if so, i did not know about this. the property was initially jointly owned (by mortgage) and with his death in service payout she paid off the mortgage. she has other money saved i.e. his pension but not no other funds in property, and the cumulative total does not exceed £1m. thank you. 

Your mother has a £325k NRB and if you father left everything to her, her estate can claim his unused NRB as well. In addition to that her estate has a residential NRB of £175k, and again as your father did not use his it is transferable to her estate giving a total exemption of £1M. 

If her savings taker her over that limit then it is best to gift cash rather than property.

saajan_12

Several issues which make it both worse and pointless

1. [WORSE] If mum wants to move in the next 30 years, then presumably you'd sell this and buy another for her? That would incur CGT 18/28% on this property, plus 3% stamp duty on the new property as its your second home (while in her name, it would be her main residence so neither due).
2. [WORSE] If its in your name, then when you sell, you pay 18% / 28% capital gains tax on the change in value between when you acquire and when you sell. So if mum lives for 30 years and the property doubles in value in that time, you'd pay CGT on the 700k increase. Which rate depends on your tax rate at the time of the sale. 
3. [WORSE] If you have credit issues, they can go after your assets including the house. Would / could you pay back your siblings if you lose their 'share'? 
4. [POINTLESS] If mum still lives there, its a gift with reservation and remains in her estate (HMRC think this is just a paper transfer and not a real gift), so she'd pay the IHT as if it was never transferred.
5. [POINTLESS] Depending on the size of mum's estate, it may be under the IHT threshold anyway (currently £325k, increased to £500k if the asset is your main house, plus potential carry over from her husband)
6. [POINTLESS] If she needs care in future, they would look back to large gifts and likely unwind the gift (or reclaim the money from forcing a sale of the house or refuse to pay the first £700k. 

If in general you / mum have heard of other people doing this, its either because they're transferring other assets not the main home or they have larger estates so the tax free threshold and care fees aren't relevant (as they'd still retain some assets). Or they are just mistaken on the points above!

RAS

saajan_12 has neatly explained why this is a really bad idea.

Basically turning an OK situation into one that benefits HMRC and risking all sorts of complications.

Your mum needs:

To organise Lasting Power's of Attorney, which she can do on-line for a small fee.
To see a good lawyer about her will who can discuss what happens in different scenarios, including that you die before she does. 

The scenario that could change things is that she might remarry. If she does that any existing will is invalidated.

trailingspouse

Just say no. 

By keeping her house in her own name, she keeps her options open. Later, if she needs to, she can downsize, or she can sell up and tour the world in a motor home, or she can pay for care home fees. As you've already worked out, if you own her house then you will be paying more stamp duty when you buy your own house (which I'm sure she wouldn't want you to be doing). Also, she would be making you her landlord - do you really want to be responsible for all her repairs? Really nothing to be gained. 

Thank her kindly and then explain that it won't do any of the good things she thinks it will, and will open up all sorts of problems that she hasn't thought of.

NannaH

Just explain to her that she can leave £1million before her estate is liable to IHT.   She has double the usual allowances.    That’s the big benefit of being married and inheriting your spouse’s estate. 

Brie

Also consider deprivation of assets.  If mom needs care in the future how will she pay for it?  If it comes down to the local authority paying they will look very deep into her situation and finances and the question about why she gave you the house will come up.  They may agree to front her care home costs but insist that the property be sold or put a lien on it to recover their costs when the house is eventually sold.  Many will think that 56 is too young to think of being in care but I've known people with early onset dementia who needing care decades before it was otherwise expected.  

If you owned the house would she pay rent as a tenant?  Are you prepared to do all the things landlord/ladies legally need to do??  Who would maintain it?  What if she changes her mind about living there?  What if you "own" it and you split from your partner who decides to make a claim on all your assets?

It seems to me that the more sensible approach would be for your mom to have a good will in place which makes you executer so that you can deal with things as you know she wants.