Early transfer of property to children. Advice needed.

Brie

Linton said:

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.

What happens if you marry or divorce or die?  All these things will complicate the house ownership.

Most important to me though is what Linton touches on about needing to pay for care.  The council will consider the entire value of the house as being available to pay for care - not just your parent's 50%.  That's because they will consider them gifting it to you to be deprivation of assets.  They might eat into your parent's half first but will quite happily go after your portion as well so selling the property will likely be the only option.  And you'll have to pay CGT too!!

Keep_pedalling

Brie said:

Linton said:

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.

What happens if you marry or divorce or die?  All these things will complicate the house ownership.

Most important to me though is what Linton touches on about needing to pay for care.  The council will consider the entire value of the house as being available to pay for care - not just your parent's 50%.  That's because they will consider them gifting it to you to be deprivation of assets.  They might eat into your parent's half first but will quite happily go after your portion as well so selling the property will likely be the only option.  And you'll have to pay CGT too!!

With an estate this big deprivation of assets is really does not come into the picture. 

MarzipanCrumble

I am in this IHT bracket - don't have health issues.  I am (and I know this is non-sensical) so reluctant to let go wealth when I should....

So I sympathise if your parents are also reluctant - reassure them, Say OK let's talk thisthrough - talk scenarios and what you would do to safeguard them..  

NlghtOwl

If they need to stay in the property then would a Retirement Interest Only ‘RIO’ be a good idea to release money from the estate. Would help IHT but not care home situation I believe.

Malthusian

NlghtOwl said:

If they need to stay in the property then would a Retirement Interest Only ‘RIO’ be a good idea to release money from the estate. Would help IHT but not care home situation I believe.

It would make it worse. If the parent who makes the gift dies within seven years there's no IHT saving and you've paid a huge amount of interest on top of the IHT bill. If they die after seven years, you will have paid far more in interest than the IHT bill would have been.
Say you borrow £300,000 on an equity release mortgage and give the money to your kids.
Parents both die within the next five years.
You save no IHT whatsoever as it's a failed PET, so you still pay £120,000, and you have paid something like £130,000 in interest to the lender on top.

Mojisola

Brie said:
Most important to me though is what Linton touches on about needing to pay for care.  The council will consider the entire value of the house as being available to pay for care - not just your parent's 50%.  That's because they will consider them gifting it to you to be deprivation of assets.  They might eat into your parent's half first but will quite happily go after your portion as well so selling the property will likely be the only option. 

Which would result in the OP's brother's inheritance being reduced.

smithereens

Savvy_Sue said:

I would also be encouraging them to spend whatever is needed to make life easier. If Dad is caring for mum, then would re-modelling the bathroom help? Stair lift? Changes to the garden and entrances? Doorways widened? And so on.

Then there's help around the home. A cleaner, an ironing service, a gardener, a companion to play games or help with things both for Mum and for Dad. 

There may be resistance, but explain that these things are so that Dad can enjoy time with mum without being worn out by the practical stuff which needs doing.

Thanks very much. My Mum can barely walk , never goes upstairs - nothing up there for them now anyway, just a place to stay for the odd guest/family friend etc. Cleaner is a good friend of family, comes round twice a month, and ironing too. They play games, i join them occasionally. Due to the house, doorways can't be widened.

So, not to bad, but always looking to improve. We've been advised on converting bathroom to a wet room, and are investigating.

Appreciate your kind suggestions! Thank you.

smithereens

MarzipanCrumble said:

I am in this IHT bracket - don't have health issues.  I am (and I know this is non-sensical) so reluctant to let go wealth when I should....

So I sympathise if your parents are also reluctant - reassure them, Say OK let's talk thisthrough - talk scenarios and what you would do to safeguard them..  

Reluctant to let go of wealth - Me too! However, I think I may end up doing the easiest thing and let them stay there, and pay my dues. Just saw in the news recently that the tax man picks up huge amounts of money every year due to inheritance tax. I think it looks like only the super-rich avoids inheritance by using trusts and stuff?

Malthusian

Just saw in the news recently that the tax man picks up huge amounts of money every year due to inheritance tax. 

Actually it's a drop in the ocean. Total Inheritance Tax receipts last year were £7.1 billion. The UK's total tax bill overall was £787 billion.
Annual Inheritance Tax receipts pay for the NHS for the first fortnight of January.
IHT is a political football, a way of making people feel less guilty about unearned wealth, and a means to encourage investment in British small businesses (which is IHT-exempt after two years).

 I think it looks like only the super-rich avoids inheritance by using trusts and stuff?

If you're super-rich you don't need trusts for that reason; the easiest way to avoid IHT is to live in a country that doesn't have it, such as Australia or the Bahamas.

In general trusts are taxed more harshly in the UK than individuals. Trusts are not exempt from Inheritance Tax; depending on the type of trust they can be subject to IHT on entry, exit and 10-year anniversaries.

km1500

also the inheritance tax levels have been frozen for some time now so I would not be surprised to see them go up in the next few years