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

LightFlare

xylophone said:

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?

That sounds like a very sensible suggestion

AROON1

Hey guys 

So sorry for delayed response to this thread, i was hospitalised for the last two weeks.
Thank you for all the comments so far it really helps.

Just some background:

Mother is age 76, recently widowed.  She owns the family home worth £1.2m to be left to me in her will and some stocks £0.5m to be left to my sister in the will.

She wants to move out of the family home as its 5 bedroom and far too big and wants to rent (as opposed to own) a one bedroom apartment so she doesn't have to maintain it.

I happen to need a large house for my family to move into (we are currently renting) so the timing works well. My mother has suggested that as I am getting the larger share of the inheritance, that we informally agree that I pay her rent (£30k/annum) for her one bed apartment until she passes. (She could also instead of renting, alternatively ask me to pay something towards the gift of the house and buy a 1 bed bungalow with it but i feel she wants to rent and not be bothered with hassle of ownership/maintenance.)

So the purpose of this is for my mother to downsize and to ideally make a potential exempt transfer to reduce IHT (whilst also benefiting me as I get a place to live).

For the purpose of this thread, whilst I note there are understandibly concerns around deprivation of assets (she is in good health so i dont thnk that would apply), and concerns around whether I would renege on the agreement to pay her monthly rent, I'd like to ignore those for the moment and just focus on the IHT issue.

Regarding the IHT issue, I've had more of a think about it. I still cant find any evidence for if a gift of family home in return for monthly rental payments of another apartment is caught by any tax regime.

It is unlikely to be caught by GROB as my mother would not be benefitting directly from the family home in any way.

And i feel it is unlikely to be caught by the POAT regime as this regime states that I would have to use the gift of the house for the "acquisition" of another property for my mother to live in. Renting another property is not acquiring it and also I wont be selling the gifted house to pay for the rent.

https://www.legislation.gov.uk/ukpga/2004/12/schedule/15

thanks
Aroon

Albermarle

The house would effectively be a gift to you of £1.2 Million Pounds. As she will have moved out it would be a potentially exempt transfer, as long as she lives another 7 years.
Not sure if you paying her rent would make any difference. It might be better for her to pay her own rent as this would reduce her estate. 

Grumpy_chap

Think it would be all far cleaner if Mother sells the house to OP for full market value.  (£1.2M)
Mother retains sufficient equity from the house to pay rent (£30k per year) on the smaller property.  Aged 76 and in good health, so could quote easily live 20-odd years.  20 x £30k = £600k.
Mother can choose to gift the OP the remaining £600k.  That will become PET.

This approach eliminates any question of GWR.

I think the £600k retained from the sale (plus the £500k shares) staying with the Mother will be sufficient to avoid any question of DoA should future care costs be incurred - reasonable assessment that the gift was not to avoid care costs as sufficient has been retained in the Mother's Estate to meet this reasonable expectation.

After a couple of years of rental payments, assuming there was a partner and transferred allowances, the Estate will be below IHT threshold (based on current rules).

The only issue remaining is one for the family dynamics of OP receiving a £600k gift from Mother but not the OP's sister.

Keep_pedalling

Deprivation of assets would not apply as she will still have ample assets to pare for any residential care required in the future, however if she ends up in an expensive care home for a few years it would all come out of the pot of money that your sister would have inherited.

The other issue is that if she dies within 7 years there is going to be a large IHT bill to meet which is gooing to come out of the residual estate.

Rather than pay her rent why not buy her house at a significant discount. This would be much cleaner and would be fairer to your sister.

Keep_pedalling

[Deleted User] said:

Keep_pedalling said:

The other issue is that if she dies within 7 years there is going to be a large IHT bill to meet which is gooing to come out of the residual estate.

Is that right?  Wouldn't the donee normally be on the hook to pay the IHT (with the personal representatives being liable if the recipient doesn't pay after 12 months). This is on the assumption that the donor hasn't specifically declared this to be a net of IHT gift when made. 

Yes, I stand corrected, but it still going to be a major issue if the OP can’t raise the funds to pay the 6 figure tax bill. 

AROON1

Guys thanks so much for your input, very helpful.

Grumpy_chap - thats an interesting way of structuring this, thank you.
Keep_pedalling - thank you also - buying at a discount might be a good solution here.

[Deleted User] - i don't follow how agreeing to pay her rent of circa £30k a year would be the same as paying her £360k for her house for SLDT purposes? she might only live one year so i don't think you can apply a value to this for SLDT can you?

Lastly - does anyone definitively know if my mother gifting me the family home and I informally paying her rent for however long she might live would come under POAT rules?

Bookworm105

AROON1 said:

Lastly - does anyone definitively know if my mother gifting me the family home and I informally paying her rent for however long she might live would come under POAT rules?

GWR rules always override POAT
as explained by others, mother's gift is a GWR so POAT never enters the equation

i originally mentioned POAT because that is an alternative issue which could apply if you/mother try to do scenarios differently to what you have suggested so far 

AROON1

[Deleted User] - thanks very much for that  will have a read.

Bookworm105 - seeing as my mother wont benefit directly from the house (as she wont be living in it) - how can it be classed as a gift with reservation? 

theoretica

Something else to maybe complicate matters is how such a gift might affect her IHT nil rate band.  At present, her estate will include the residential nil rate band for her and her husband, even if she downsizes.  Would this still be the case if she gives away the property (or its proceeds)?