Parent living with child

kiss_my_face

A parent does not own their own property. They live in their adult child's property with their adult child. They contribute £200 a month towards food/bills etc. What implications may their be for a) the adult child's tax and b) potential inheritance tax in the future?

The parent sold their own house 10+ years ago. 

Should there be some kind of formal lodging agreement in place? Or is it OK to keep it informal (I.e. Nothing signed and no contract). 

It seems that less than £7500 a year does not need to be declared if you have a lodger. But this is a slightly different arrangement from usual and I wonder if letting family live with you makes any difference to anything.

Any advice welcome! 

chanz4

any benefits?

GDB2222

They have formed a single household, sharing expenses. There are no tax implications. 

user1977

Well, there's a council tax implication if it means the child no longer qualifies for the single person discount.

But otherwise I don't see any implications for other taxes. What are you thinking the inheritance tax effect may be?

kiss_my_face

chanz4 said:

any benefits?

No benefits for either party. Just state pension for parent. 

kiss_my_face

user1977 said:

Well, there's a council tax implication if it means the child no longer qualifies for the single person discount.

But otherwise I don't see any implications for other taxes. What are you thinking the inheritance tax effect may be?

Inheritance tax - if a payment of £200 a month is made over the period of 2 years and then the parent passes away, could that be seen as taxable for inheritance tax if no formal written agreement is in place. It may look like a series of 24 gifts totalling £4800 if there's no paper trail. 

sevenhills

kiss_my_face said:

A parent does not own their own property. They live in their adult child's property with their adult child. They contribute £200 a month towards food/bills etc. What implications may their be for a) the adult child's tax and b) potential inheritance tax in the future?

 My 96 yr old relative pays me £200 per month for gardening and other help. I think you could easily pay the going rate for lodger/rent before there would be any implications.

user1977

kiss_my_face said:

user1977 said:

Well, there's a council tax implication if it means the child no longer qualifies for the single person discount.

But otherwise I don't see any implications for other taxes. What are you thinking the inheritance tax effect may be?

Inheritance tax - if a payment of £200 a month is made over the period of 2 years and then the parent passes away, could that be seen as taxable for inheritance tax if no formal written agreement is in place. It may look like a series of 24 gifts totalling £4800 if there's no paper trail. 

They're not "gifts" though, they're contributions towards household expenses. If the parent was being excessively generous with their contributions then perhaps, but even so it's within the annual allowance (assuming there aren't other gifts on top).

In any event, what's the concern? It's hardly a reason not to make the payments, as otherwise the parent will (presumably) still have the cash, and then it's definitely part of their estate for IHT purposes!

GDB2222

kiss_my_face said:

user1977 said:

Well, there's a council tax implication if it means the child no longer qualifies for the single person discount.

But otherwise I don't see any implications for other taxes. What are you thinking the inheritance tax effect may be?

Inheritance tax - if a payment of £200 a month is made over the period of 2 years and then the parent passes away, could that be seen as taxable for inheritance tax if no formal written agreement is in place. It may look like a series of 24 gifts totalling £4800 if there's no paper trail. 

You know that IHT is nil for the first £325,000?

kiss_my_face

GDB2222 said:

kiss_my_face said:

user1977 said:

Well, there's a council tax implication if it means the child no longer qualifies for the single person discount.

But otherwise I don't see any implications for other taxes. What are you thinking the inheritance tax effect may be?

Inheritance tax - if a payment of £200 a month is made over the period of 2 years and then the parent passes away, could that be seen as taxable for inheritance tax if no formal written agreement is in place. It may look like a series of 24 gifts totalling £4800 if there's no paper trail. 

You know that IHT is nil for the first £325,000?

Yes, but the parent may inherit money themselves in the next couple of years that increases their savings and pushes them over that threshold should they pass away. 
At moment this is all hypothetical, but really useful to get opinions to see what I've missed. 

sheramber

Was there a mother who died previously and he was married to her when she died?

Was mother’s nil rate band used after her death?