7 year rule?

L123

My friend has had her house signed over to her 7 years ago and her dad still lives in it to avoid inheritance tax. Does it work like that?

elsien

The seven year rule doesn’t apply because he is still living there so  it will count as a gift with reservation of benefit. 

Keep_pedalling

No, this was a very foolish thing to for him to do. Does she also live there?

L123

No she doesn’t live there and yes they saw a solicitor. It was done through a solictor.

BoGoF

I mean proper advice in terms of if the 'arrangement' would work (which it wont). 

A solicitor was probably involved to do the transfer but was not asked about the merits of doing it?

RAS

It might be a good idea if she seeks advice from a good STEP solicitor about the implication of this.

They may not have failed to obtain any IHT advantage but also created a CGT liability.

Keep_pedalling

L123 said:

No she doesn’t live there and yes they saw a solicitor. It was done through a solictor.

That that makes things simple. Unless he is paying her full market rent to live in his home the this is a gift with reservation of benefit and for IHT purposes remains within his estate.  On top of this she will almost certainly have a CGT liability when the house is eventually sold. 

On April 6th 2017 the residential NRB was introduced allowing people to leave the children up to £500k IHT free (£1M for married couples) If he transferred the property before this date his estate will no longer be able to claim that allowance so the transfer can only increase the IHT liability rather than reduce it.

There is nothing to stop anyone transferring property to someone else and if they simply instructed a solicitor ro  do a property transfer there is no comeback on them.

Do you happen to know the value of the house and the value of assets he still owns?

km1500

As the house is not her main residence and is in her name she will be liable for capital gains tax on the increase in value when she sells it

as she already owns this house then she will be liable for the extra 3% sdlt if she should buy herself a house or move

regarding IHT - as her dad is living there the house still forms part of his estate and the 7 yr rule does not apply

on the positive side:

as she already owns the house then she will not have to wait for probates to gain possession when her father dies

if the estate in total is under 325k there may well not be any inheritance tax to pay anyway

L123

km1500 said:

As the house is not her main residence and is in her name she will be liable for capital gains tax on the increase in value when she sells it

as she already owns this house then she will be liable for the extra 3% sdlt if she should buy herself a house or move

regarding IHT - as her dad is living there the house still forms part of his estate and the 7 yr rule does not apply

on the positive side:

as she already owns the house then she will not have to wait for probates to gain possession when her father dies

if the estate in total is under 325k there may well not be any inheritance tax to pay anyway

The estate will be less than £325k but she’s seeking advice.

Keep_pedalling

L123 said:

km1500 said:

As the house is not her main residence and is in her name she will be liable for capital gains tax on the increase in value when she sells it

as she already owns this house then she will be liable for the extra 3% sdlt if she should buy herself a house or move

regarding IHT - as her dad is living there the house still forms part of his estate and the 7 yr rule does not apply

on the positive side:

as she already owns the house then she will not have to wait for probates to gain possession when her father dies

if the estate in total is under 325k there may well not be any inheritance tax to pay anyway

The estate will be less than £325k but she’s seeking advice.

In which case there never was any IHT to avoid so the whole exercise was pointless. 

SVaz

If the Father needs a care home / care at home, unless he has substantial savings, the LA will come after the house,  be it 7 years or 27.