Inheritance Tax when property has been gifted

ginger111

It would be helpful for thoughts on the following scenario please.

Mr & Mrs A and their daughter all live together.  

The house they live in was previously owned by Mr A but this was gifted to his daughter more than 7 years ago.  

Mr A (and Mrs A) do not pay rent.  

Mr A’s daughter has never owned another house she continues to live in the family home which is now in her name.

Mr A’s estate is currently in the region of £210K (excluding the value of the house mentioned above).

Mrs A’s estate is currently in the region of £121K.

Mr A will leave his estate between his children and grandchildren apart from a sum of £20K to his wife Mrs A.  No house involved as this is now owned by his daughter.

Mrs A will do the same – all between children and grandchildren with £20K to Mr A her husband.

Does the value of the house need to be added to Mr A’s estate?  If so, at what valuation – the value at the time of transfer (£120K) or whatever the value is when Mr A dies (current value £170K)?

As Mr and Mrs A are a married couple what is their allowance and will IHT be applicable for Mr A in the above scenario (if the value of the house needs to be accounted for this will take Mr A over £325K but not sure what the position/value is given he is married - £650K??).

I believe that “surplus” income can be given away providing it does not affect the persons standard of living and regular gifts are made.  Is this correct please?

Finally, for example, can Mr A gift his wife Mrs A unlimited money during his life time (over and above the £3K per annum that can be gifted free of IHT)?

Thanks in advance.

Keep_pedalling

This was a pretty dumb thing to do and as they still live there it is classed as a gift with reservation of benefit so does not fall out of their estate under the 7 year rule although daughter living there may mean that only applies to 2 thirds of the gift.

You say over 7 years ago so it is also likely that they have lost there RNRB exemptions which would have allowed them to leave £1M tax free. If he died today I believe that 75% of the current value of the house would fall into his estate.

No point in excess income gifting to a spouse as anything left or gifted to a spouse or civil partner is exempt.

Olinda99

yes I agreed it is a gift with reservation and if you Google it you'll get more information. 

basically you can't gift your house to your children and then continue living there and take advantage of the seven year rule

you need to determine the value of the gift at the time it was made and this will count towards the £375k IHT allowance

Brie

Hopefully neither Mr or Mrs  will need the local council to pay for care as the house may still be considered an asset that could be sold.  

RAS

This couple have no current basic IHT liability other than that deriving from the house they gifted. They've created a liability which probably did not exist prior to the gift.

What is the house value? Why was the house in the sole ownership of Mr A, when joint tenancy could have taken the house outside the estate on the first death?

Even with the sole ownership, there is no IHT due on transfers between spouses, so mirror wills leaving everything to other spouse on the first death would have removed IHT liability if Mr A died first. They could have left life interest in half the house to the survivor, with the children or child as ultimate beneficiaries, avoiding possible CGT and deductions for care costs.

And as Brie points out, one of the questions asked by local authorities when making care cost assessments is if the person has ever owned property, and what happened to it if no longer owned. They can unwind gifts designed to avoid care costs. Or flatly refuse to fund any care costs for the person who gifted their assets.

Keep_pedalling

I wonder what would happen if Mrs A wanted to divorce Mr A after he gave away the matrimonial home.