Mother gifts family home - in return for having rent paid on different apartment

AROON1

Hi there

my elderly mother wishes to gift us the family home (or sell it and give us the cash proceeds).

In return we will need to pay for her rent of a smaller one bed apartment.

I understand that if she gifts us the family home (or the cash proceeds from the sale of it), and we *buy* her an apartment to live in, this will be caught under the pre owned asset charge regime. But if we pay for her monthly rent instead, will this be subject to the pre owned asset charge/gift with reservation of benefit regime?

My guess is (if we were to pay her rent), that gifting us the home will be under the pre owned asset rules, or gifting us the cash proceeds of the sale would be under the gift with reservation of benefit rules (as she still benefits from the cash), but there doesn't seem anything conclusive on the HMRC website with regards to this situation (where you pay for someones rent.)

Furthermore, if it were caught by the POAT regime would the annual amount charged be to POAT be how much I could rent out the family apartment for post tax, or if the sales proceeds are given to me, how much interest I receive on the proceeds after tax?

Or if it were caught by the GROB regime would the value of the benefit be the market value of the new apartment she rents?

any thoughts would be very welcome,
AD

elsien

What is your mother hoping to achieve by doing this?

Depending on her health and the reasons she is doing this, she needs to consider deliberate deprivation of assets with regards to care costs in the future. 

Alongside the wisdom (or lack of it) of giving a large asset away leaving her vulnerable to family fallout, changes in circumstances et cetera.  You could blow the lot, lose your job due to redundancy or ill health and be unable to afford her rent. Or just choose not to pay it.

 That is an extreme example, but before you say it won’t happen to us, posts on here and other places evidence that unfortunately it does. 

Unless your mother has substantial other assets, I would strongly advise that she reconsiders. 

Keep_pedalling

So what is the value of her home and what does she have in the way of savings?

What is her marital status? 

If you need to pay her rent it sounds like she has little in the way of income or savings, which suggests the she is not actually in IHT territory and she risks being accused of deliberate derivation of assets if she ever needs residential care. 

Grumpy_chap

AROON1 said:

Hi there

my elderly mother wishes to gift us the family home (or sell it and give us the cash proceeds).

In return we will need to pay for her rent of a smaller one bed apartment.

I understand that if she gifts us the family home (or the cash proceeds from the sale of it), and we *buy* her an apartment to live in, this will be caught under the pre owned asset charge regime. But if we pay for her monthly rent instead, will this be subject to the pre owned asset charge/gift with reservation of benefit regime?

My guess is (if we were to pay her rent), that gifting us the home will be under the pre owned asset rules, or gifting us the cash proceeds of the sale would be under the gift with reservation of benefit rules (as she still benefits from the cash), but there doesn't seem anything conclusive on the HMRC website with regards to this situation (where you pay for someones rent.)

Furthermore, if it were caught by the POAT regime would the annual amount charged be to POAT be how much I could rent out the family apartment for post tax, or if the sales proceeds are given to me, how much interest I receive on the proceeds after tax?

Or if it were caught by the GROB regime would the value of the benefit be the market value of the new apartment she rents?

any thoughts would be very welcome,
AD

What is the purpose of this proposed action?

If this is to avoid future IHT then it would seem to fail as it will be captured under GwR (gift with reservation) and still be considered to be within Mother's estate.  You seem to have noted this in any case.
Is Mother's Estate likely to be liable for IHT in the first instance?
If GwR applies, then the value of the gift would be the value of the family home that has been gifted.

If this is to avoid care fees then it would seem likely to fail as it will be captured under DoA (deprivation of assets) and your Mother will still be deemed to have the assets / notional income arising with which to fund her care.

For either scenario, have you considered the potential taxation / impact to means-tested benefits that may arise in the case of the recipients?  Have you considered potential complications in the event of relationship breakdown between the recipients and partner?

In the absence of any further information, my thoughts are simply "don't do it."

akm2018

AROON1 said:

.. wishes to gift us .... In return we will....

Doesn't look much like a gift to me!

And as ever the general principle that "whatever clever scheme you've come up with, The Man has seen it before" applies...

xylophone

Why doesn't your mother sell her home and buy a one bedroom flat/bungalow?

She could then invest/save the balance of the sale proceeds to provide her with an income and if this income is in excess of what she requires (because eg her pension/other income cover her outgoings) could make you and your siblings regular gifts from income?

silvercar

If this is to avoid future IHT then it would seem to fail as it will be captured under GwR (gift with reservation) and still be considered to be within Mother's estate.  You seem to have noted this in any case.
Is Mother's Estate likely to be liable for IHT in the first instance?
If GwR applies, then the value of the gift would be the value of the family home that has been gifted.

Is it automatically a GwR? What happens if she sold with the intention of moving in with her children and then that didn't work out for whatever reason and so the family decided to rent her a place? The sale and subsequent gift wouldn't be linked to the family renting her a place. 

uknick

silvercar said:

If this is to avoid future IHT then it would seem to fail as it will be captured under GwR (gift with reservation) and still be considered to be within Mother's estate.  You seem to have noted this in any case.
Is Mother's Estate likely to be liable for IHT in the first instance?
If GwR applies, then the value of the gift would be the value of the family home that has been gifted.

Is it automatically a GwR? What happens if she sold with the intention of moving in with her children and then that didn't work out for whatever reason and so the family decided to rent her a place? The sale and subsequent gift wouldn't be linked to the family renting her a place. 

How would you prove that scenario to HMRC?  Don't forget HMRC's initial attitude is "guilty until proven innocent" when it comes to tax matters.

xylophone

HMRC tend to come down hard on contrived tax avoidance......

sheramber

silvercar said:

If this is to avoid future IHT then it would seem to fail as it will be captured under GwR (gift with reservation) and still be considered to be within Mother's estate.  You seem to have noted this in any case.
Is Mother's Estate likely to be liable for IHT in the first instance?
If GwR applies, then the value of the gift would be the value of the family home that has been gifted.

Is it automatically a GwR? What happens if she sold with the intention of moving in with her children and then that didn't work out for whatever reason and so the family decided to rent her a place? The sale and subsequent gift wouldn't be linked to the family renting her a place. 

if it didnlt work out should thye not return the gift of money they received since the arrangemnet has  ended.

silvercar

Bookworm105 said:

POAT - Pre Owned Asset Tax

mother will be liable for income tax for as long as she lives on the value of the asset given away by her in exchange for something else (rent paid by you)

POAT doesn’t apply if the gift remains in the estate for inheritance tax purposes eg a gift with reservation, that this would appear to be.

Interesting case would be if mother sold her place and moved in with child, then needed more care and so moved to a care home paid for by the child. Are the care home costs being paid by the offspring interpreted as meaning the sale of the home and gift to the child was a GwR? Does it depend on how long the parent lived with the offspring eg a couple of months looks like GwR, a couple of years would not? But then people can deteriorate really quickly and an intention (to house elderly parent) can move from being a good idea to impossible in a short time.