Early transfer of property to children. Advice needed.

NlghtOwl

Malthusian said:

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.

Agree, would need to do some careful calcs and possibly works only in a very low interest rate environment rather than now. 

Worth noting that the 7 yr exemption is tapered so still a benefit of giving gifts, even if the full 7 yrs may not pass. 

Malthusian

NlghtOwl said:

Agree, would need to do some careful calcs and possibly works only in a very low interest rate environment rather than now. 

Even when interest rates were zero, equity release rates were still around 3-4%, so if you lived longer than about a decade, the interest bill would be higher than the IHT saved. And you still have the same risk of paying interest plus the IHT bill if you lived fewer than seven. So basically it is a bad idea if you are not in great health and a bad idea if you still have plenty of life ahead of you.

  Worth noting that the 7 yr exemption is tapered so still a benefit of giving gifts, even if the full 7 yrs may not pass.

Taper relief only applies if you give away more than £325,000, and only on the excess over the £325,000.

NlghtOwl

Malthusian said:

NlghtOwl said:

Agree, would need to do some careful calcs and possibly works only in a very low interest rate environment rather than now. 

Even when interest rates were zero, equity release rates were still around 3-4%, so if you lived longer than about a decade, the interest bill would be higher than the IHT saved. And you still have the same risk of paying interest plus the IHT bill if you lived fewer than seven. So basically it is a bad idea if you are not in great health and a bad idea if you still have plenty of life ahead of you.

  Worth noting that the 7 yr exemption is tapered so still a benefit of giving gifts, even if the full 7 yrs may not pass.

Taper relief only applies if you give away more than £325,000, and only on the excess over the £325,000.

Thanks for pointing out when the taper relief kicks in, I hadn’t spotted that if you gave away £200,000 but died after 6 years you would still pay full 40% IHT. It shows why this area is a minefield. 👍