Early transfer of property to children. Advice needed.

smithereens

Hello.

My parents are old and live in a relatively expensive house they own outright. I would like to transfer 50% of the property to me early on, the other remaining 50 with my parents. This is to reduce any inheritance tax liabilities that may arise after 7 years from now (sorry!). My thoughts are, on my parent's passing, their share would pass outright to my brother (there are just us two siblings). Me and my brother have spoken to my parents, and they are happy with this idea and are happy to update their will.

Do people do this, ie is this normal? Are there any issues / drawbacks (tax, assessments, etc) I may get from owning 50% of the property? Any issues with Care / council care /paying for care?

Thank you.

poppystar

When you say relatively expensive is their total estate likely to top the £1m they could get in allowance before IHT becomes an issue?

maisie_cat

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

silvercar

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

This ^^, plus you will have a CGT liability on sale, given it isn’t your main residence. 

Linton

Are your parents going to be paying IHT anyway?  AIUI they would need to be worth at least approx £1M for IHT to apply.

What is in it for your parents?  For example what happens if you die before they do, or divorce or become bankrupt?  Will the house have to be sold? What happens if your parents want to move into a smaller house or one more appropriate were they to become infirm ? Will half the value of the house be enough to buy something suitable?

Do your parents have sufficient other assets to pay for care either at home or in a care home?  If one parent needs to go into care whilst the other is living in the house then the house will be disregarded for costs.    However if the other one has died then the house can be taken into consideration. If there are no other assets the best that is likely to happen is that the council will be prepared to simply put a charge on the house to be paid when it is sold.  Will your brother be happy if you have your half house whilst the value of his inheritance is depleted?

Conversely when the house is eventually sold after both parents die you will be liable for CGT whereas your brother wont.

I suggest you and they think carefully through all the what-ifs.

smithereens

poppystar said:

When you say relatively expensive is their total estate likely to top the £1m they could get in allowance before IHT becomes an issue?

Yeah, it would top 1m. The house is probably 1.2.

smithereens

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

Thank you for this, I've just googled "Gift with reservation". That answers my question - explains a lot.

Ah well. Looks like there is no way of being hit by a big bill. Thanks again.

smithereens

silvercar said:

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

This ^^, plus you will have a CGT liability on sale, given it isn’t your main residence. 

Interesting -why would you still have CGT if the property was transferred for zero?

Flugelhorn

smithereens said:

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

Thank you for this, I've just googled "Gift with reservation". That answers my question - explains a lot.

Ah well. Looks like there is no way of being hit by a big bill. Thanks again.

see if they want to downsize and spend money on the new place - google "gifts from excess income"

Linton

smithereens said:

silvercar said:

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

This ^^, plus you will have a CGT liability on sale, given it isn’t your main residence. 

Interesting -why would you still have CGT if the property was transferred for zero?

Because one can assume the half house would have increased in value between being acquired and later sold and the OP was not living in the house.

silvercar

smithereens said:

silvercar said:

maisie_cat said:

If your parents continue to live in the house it will be a gift with reservation. Upon your parent's deaths the "gift" will be treated as though they still owned it at death and no IHT will be saved.

This ^^, plus you will have a CGT liability on sale, given it isn’t your main residence. 

Interesting -why would you still have CGT if the property was transferred for zero?

CGT on sale, so would hit the children not the elderly parents. Transfers between connected parties eg relatives are deemed to have taken place at market value.

So transfer a home worth 1.2m now and sell it in 10 years time for say 1.5m, you have a gain of 300k that is liable for CGT when it is eventually sold.