Inheritance tax related

jenniejo

we own our own home, thankfully now mortgage free.  We also own a 2nd property which my mother in law has right of residency to until she passes on - That is Not a problem.  That property also has no mortgage.  What we are wondering is can we add our two adult sons as joint owners of the 2nd property now along with ourselves?  If so, what if any tax might this incur?  Any assistance on pro's and con's of this idea from a financial/tax aspect would be appreciated.  Many thanks

uknick

Have a read of this recent thread, should cover pretty much what you're asking;

Inheritance Tax / putting part of home in children’s names. - Page 3 — MoneySavingExpert Forum

Keep_pedalling

uknick said:

Have a read of this recent thread, should cover pretty much what you're asking;

Inheritance Tax / putting part of home in children’s names. - Page 3 — MoneySavingExpert Forum

I don’t think the OP was thinking gifting any of their own home just the second property.

The down side of this is that you may have an immediate CGT liability to pay on the transfer even if no money changes hands.

Whether doing this would potentially save any IHT would depend on the value of your combined net worth. A married couple owning property can leave up to £1M to children IHT free. 

p00hsticks

uknick said:

Have a read of this recent thread, should cover pretty much what you're asking;

Inheritance Tax / putting part of home in children’s names. - Page 3 — MoneySavingExpert Forum

Although the scenario described there is rather different, in that in that thread the OP was considering gifting part of their main residence to sons who were also living in the property - from the sound of it neither applies in this particular case. 

Grumpy_chap

jenniejo said:

we own our own home, thankfully now mortgage free.  We also own a 2nd property which my mother in law has right of residency to until she passes on - That is Not a problem.  That property also has no mortgage.  What we are wondering is can we add our two adult sons as joint owners of the 2nd property now along with ourselves?  If so, what if any tax might this incur?  Any assistance on pro's and con's of this idea from a financial/tax aspect would be appreciated.  Many thanks

What is the history of the second property that you own and your MiL has right of residency to?
Was it originally the MiL's home?
If so, it may be that the property is not as much "yours" as you think it is.  It could still be considered as part of MiL's Estate for IHT purposes (under GwR - Gift with Reservation), and in the event that care needs require funding (under DoA - Deprivation of Assets).

Assuming the 2nd property is, indeed, yours to do with as you wish, then the following considerations may be relevant:
 - CGT on transfer from you to sons.
 - SLDT on transfer from you to sons.  Do your sons already own property?  If so, second property surcharge may apply.
 - If your sons do not own property, then FTB status may be forfeited and, whenever they decide to get on the housing ladder, second property SDLT surcharge will apply.
 - How will the benefit of the second property be managed / divided?  Do your sons get a say and any split of rental income?  If not, this is starting to sound like a GwR from your Estate and may not achieve the desired removal of the value from your Estate for IHT purposes.
 - If your sons ever need to claim means-tested benefits, the value of the property owned will be assessed as capital and reduce benefits entitlement.
 - If your sons divorce, the partial value of the property may be considered as a marital asset.

The thread linked by @uknick a few posts up is relevant to read in this context - albeit you are gifting a second property rather than your principal private residence.

There is also a recent thread where the Local Authority is seeking to cover care home fees from a property that had been put in daughter's name rather than senior generation:
https://forums.moneysavingexpert.com/discussion/comment/80793828#Comment_80793828

uknick

Apologies, should have the read the OP correctly.

jenniejo

Thanks all for the comments.  The MiL NEVER actually owned the 2nd property (it was solely owned in FiL's name and he willed her Right of Residence.  Ownership was transferred to my husband and I back in 1995/96 after FiL's death.  I have since taken some advice from an accountant and solicitor and it appears that the £1m property to children IHT free covers us.  But again, thanks for all your comments/help

Qyburn

My read is that the IHT "residence nil rate band" can only be applied to one property, and it must be one that the deceased both owned and lived in.

"Only one home will qualify for the available residence nil rate band. If the person who died owned and lived in more than one home, the executor can choose which one to use. 

The person that died must have owned and lived in the property at some time. A property that they owned but never lived in, such as a buy-to-let, will not qualify for this allowance."

NorthYorkie

Jenniejo: It seems to me that on your father-in-laws death a Will Trust was created whereby Mother-in-law was a 'life tenant' of this property and you and your husband would only inherit that property on her death. Meanwhile you and your husband are merely holding the property as trustees. From this it would follow that:
(a) the value of the property would fall into your mother-in law's estate for Inheritance Tax purposes
(b) I don't see that you can actually transfer any share of the property to your sons at this stage. To do so might be a breach of trust.

Nomunnofun1

jenniejo said:

Thanks all for the comments.  The MiL NEVER actually owned the 2nd property (it was solely owned in FiL's name and he willed her Right of Residence.  Ownership was transferred to my husband and I back in 1995/96 after FiL's death.  I have since taken some advice from an accountant and solicitor and it appears that the £1m property to children IHT free covers us.  But again, thanks for all your comments/help

Didn’t accountant mention  CGT liability on the transfer to your children?

NorthYorkie

Nomunnofun1 said:

jenniejo said:

Thanks all for the comments.  The MiL NEVER actually owned the 2nd property (it was solely owned in FiL's name and he willed her Right of Residence.  Ownership was transferred to my husband and I back in 1995/96 after FiL's death.  I have since taken some advice from an accountant and solicitor and it appears that the £1m property to children IHT free covers us.  But again, thanks for all your comments/help

Didn’t accountant mention  CGT liability on the transfer to your children?

Remember under English law there are two types of 'ownership', legal and beneficial. Jenniejp and her husband may have legal ownership of the property BUT I question whether they also have beneficial ownership. CGT is only concerned with beneficial ownership so no CGT liability would arise. However, as I mentioned earlier I don't think she can transfer her sons a share of the beneficial ownership anyway.

She needs to refer to father-in-law's will and seek professional advice.