Giving jointly owned house

nopaddle

My dad and uncle currently own an equal share in a house that my grandfather used to live in and own. They would like to transfer ownership to me in the most tax efficient way.

The most obvious route is for my uncle to give me his half, and my dad to give me his half. As I understand it, if they both live for more than seven years, no inheritance tax will be due. Otherwise, upto 40% of the value above the threshold is payable.

It occurred to me there might be another option:

Around 5-years ago my uncle’s business went into administration, and he lost a second property that he jointly owned with my dad. They came to the arrangement that my uncle should then give my dad his half of my gran’s old house.

Assuming the value of the first and second properties are the same, I would have thought HMRC cannot lay claim to any tax in this transaction. Tax would only be due if there is a difference in the valuations.

Is this correct? They had no pior agreement before my uncle lost the second property, so would HMRC argue that my uncle does not owe my dad anything, and that the transfer of ownership is a gift?

(I realise that there are tax implications with regards to my dad’s estate when he transfers some of it to me.)

Brie

Well I can't say I understand all the giving and gifting that has been going on.  But here's what I do get....

Yes they can gift you each their halves of the house.  And 7 years and no IHT.  But if before 7 years a declining rate.  

BUT should either need assistance with care from the local authority they will look on it as deprivation of assets and look to you to pay any care costs.  And that doesn't have a 7 year limit on it.  It will depend on the individual council to see how vigilant they are on checking on this and there's really no way to ask the council in advance.  

Savvy_Sue

Another question is who is currently living in the house atm? If it's either of them, and they're not planning to pay the new owner(s) any rent, then that makes the situation less clearcut too. 

Martyn_H

If you live in the house, I believe you would have to pay a market rent to your dad and uncle.

Hoenir

Both would be liable to CGT on any post probate gain. A disposal is a disposal irrespective of whether there's consideration paid or not. 

Keep_pedalling

If your father and Uncle don’t live in this house then it won’t drop out of their estate unless they are also going to pay you full market rent.

If they don’t live there they will create a CGT liability on the transfer to you. This could be substancial if they have owned it for a long time.

Olinda99

the first and obvious question is do your uncle and/or dad live in the house and if so, if they gift their shares to you will they continue living there?

Marcon

Martyn_H said:

If you live in the house, I believe you would have to pay a market rent to your dad and uncle.

Not if it's been gifted to OP. It would be the other way round if father/uncle continued to live there - if they didn't pay rent to OP, it would be a 'gift with reservation'.

nopaddle said:

My dad and uncle currently own an equal share in a house that my grandfather used to live in and own. They would like to transfer ownership to me in the most tax efficient way.

The most obvious route is for my uncle to give me his half, and my dad to give me his half. As I understand it, if they both live for more than seven years, no inheritance tax will be due. Otherwise, upto 40% of the value above the threshold is payable.

It occurred to me there might be another option:

Around 5-years ago my uncle’s business went into administration, and he lost a city centre office building that he jointly owned with my dad. They came to the arrangement that my uncle should then give my dad his half of my gran’s old house.

Assuming the value of the office and house are the same, I would have thought HMRC cannot lay claim to any tax in this transaction. Tax would only be due if there is a difference in the valuations.

Is this correct? They had no pior agreement before my uncle lost the office, so would HMRC argue that my uncle does not owe my dad anything, and that the transfer of ownership is a gift?

(I realise that there are tax implications with regards to my dad’s estate when he transfers some of it to me.)

Get some professional advice. Please. You can't just make it up as you go along (even if there are times when you feel that's exactly what HMRC do!), and what you've said sounds dubious in the extreme. 

nopaddle

Thanks for all the comments. I live in the house.

I realise this is not trivial and I have tried to seek professional advice but my accountant said it inheritance tax is really outside her scope. My pensions advisor is fine for what he does but I am not convinced his opionion in this matter is routed in experience. Beyond a personal recomendation, how can I find some reliable advice? Can I pay an hourly rate for this sort of advice?

Although not paying too much inheritence tax is key here, perhaps it confuses the key question: Would the transfer of property to my dad be considered a capital repayment, and so not liable tax for the full amount; or is it considered a gift, and attract the appropriate tax?

The points about CGT is a good one and something that I should be able to get proper advice on.

Keep_pedalling

If there any documentation from 5 years showing that your uncle owes your father money? I don’t think this helps you in this transaction but it will make a difference to the values of each of their estates.

If your father transfers his half of the property to you he will have to pay CGT on the gain in value between the date he inherited it and current market value and the same will apply to your uncle if he transfers his share to you. The gift won’t fall out of their estates for 7 years so there is a risk that IHT may be payable on top of CGT. If both of them are in good health they could take out term life insurance to cover IHT on a failed PET. 

If your uncle transfers his share to your father first he would still need to pay CGT because, regardless of why it is transferred, CGT still applies so I don’t see anny advantage in doing this. 

nopaddle

The possible advantage is three-fold:

Firstly, it would simplify the arrangements if my uncle dies. For example if he lives for 8-years, I would not be expected to pay IHT, but if he gives part of his estate to his daughters in say 6-years time, they would have to pay IHT. It would seem fair that I paid this, but the details might get complex.

Secondly, both my parents are alive and married, I guess there is then a higher chance that they would out live my uncle.

Thirdly, my uncle's estate is worth more than my dad's so there more value in my uncle's estate that is over the threshold, and he can't share this with his wife any longer.