IHT - house ownership, 7 year rule & paperwork

Keep_pedalling

marchesini46 said:

Ok, so what I thought was a relatively simple transfer of ownership has highlighted a number of potential challenges with regards to my parents estate. 

Currently, they have several properties (all mortgage free) which are rented out for additional income in their retirement. Each of their children (myself included) have been allocated a house each upon their passing. Each property are not worth the sane as they were allocated at random to avoid any arguments later.  They are all fully owned by my parents. 

So according to my new understanding, there are absolutely no benefits to transferring any of these properties to myself or my siblings as they would be liable to pay CGT from their original purchase prices. However, upon my parents passing, there will be an inheritance tax to pay on each house by the estate (not the recipient). As each house is likely to have a sitting tenant upon each of us receiving the property, we can either continue to rent the property or sell with no CGT liability?

It also seems it’s my parents generosity is way more complex than it appears so would be prudent to thrash out all the details on taxes etc to avoid any arguments later on. Is a financial advisor the best person to discuss or someone else?

Your parents are not being that generous if they are only gifting you the legal ownership but retaining the beneficial ownership (still receiving the rent).

Holding all your wealth in illiquid assets such as property has a number of disadvantages over a broader portfolio of assets. All of it is held outside a tax efficient wrapper such as a pension or ISA so all income subject to IT and gains in value to CGT, which also makes IHT planning far more difficult. How much do you think they are worth jointly?

I think they do need professional advice rather than trying to wing it. Do they have an accountant? 

silvercar

Keep_pedalling said:

marchesini46 said:

Ok, so what I thought was a relatively simple transfer of ownership has highlighted a number of potential challenges with regards to my parents estate. 

Currently, they have several properties (all mortgage free) which are rented out for additional income in their retirement. Each of their children (myself included) have been allocated a house each upon their passing. Each property are not worth the sane as they were allocated at random to avoid any arguments later.  They are all fully owned by my parents. 

So according to my new understanding, there are absolutely no benefits to transferring any of these properties to myself or my siblings as they would be liable to pay CGT from their original purchase prices. However, upon my parents passing, there will be an inheritance tax to pay on each house by the estate (not the recipient). As each house is likely to have a sitting tenant upon each of us receiving the property, we can either continue to rent the property or sell with no CGT liability?

It also seems it’s my parents generosity is way more complex than it appears so would be prudent to thrash out all the details on taxes etc to avoid any arguments later on. Is a financial advisor the best person to discuss or someone else?

Your parents are not being that generous if they are only gifting you the legal ownership but retaining the beneficial ownership (still receiving the rent).

Holding all your wealth in illiquid assets such as property has a number of disadvantages over a broader portfolio of assets. All of it is held outside a tax efficient wrapper such as a pension or ISA so all income subject to IT and gains in value to CGT, which also makes IHT planning far more difficult. How much do you think they are worth jointly?

I think they do need professional advice rather than trying to wing it. Do they have an accountant? 

I'm reading it as a future allocation ie put into their mirror wills, rather than gifted now with retaining the rent. 

It does seem rather odd to allocate at random rather than try and equate the values. Especially if there is inheritance tax to pay on the estate, those benefitting the least by inheriting a property of a lower value will lose an equal amount of the remaining estate that is swallowed up by tax as those who benefited the most.

Albermarle

OP 
There are regular similar threads on here, regarding people thinking there are 'easy' ways to avoid IHT, sometimes from will executors trying to untangle a mess/unsuitable trusts etc .
The simple ways to avoid/reduce IHT are 
1) To spend more
2) Give more away
3) Utilise the annual allowances for gifts ( £3k each + some smaller amounts)
4) Leave money to charity in your will 
5) Have some of the assets in a DC pension pot ( this route may get blocked soon, or partly anyway) 

Regarding Point 2) it has to be an outright gift. So in your case your parents would have to give you the property and you would get the rent from it. You could do want you want with it, even just sell it whether your parents agreed or not.