Transfer of gift - questions on taxation issues etc.

itwasntme001

Hello,

My parents are in their early 70s and have gifted large sums of money to me and my sibling over the years in order to manage IHT implications given their estate.  Due to a combination of stock market growth and excessive savings of their incomes, my parents current wealth is quite a bit over the combined IHT allowance of £1m.

In order to mitigate further this tax, instead of gifting further cash, my parents are thinking of gifting a share in their mortgage-free residential home they live in (via a "transfer of gift").  I am a bit hesistent to this, partly because my own estate is well over the IHT allowance (despite me being "only" in my 40s and in good health) and partly because of the complications that might arise.

I have the following questions:

1) I understand about the reservation of benefit implications and so to get around that I understand my parents would need to pay rent at market level to me and my sibling for the share that we own?  So if me and my sibling own 25% each, my parents would have to pay a quarter of the market rent to both me and my sibling?

1a) If doing the transfer via a trust, would rent still need to be paid or can trusts get around this issue?

2) Since me and my sibling are property owners, do we need to pay any second home stamp duty at 3% even though the transfer is a gift rather than equity (there is no mortgage)?  I think the answer is no but would like confirmation.

3) I am not married and have recently split up with my partner so am planning to move back in with my parents on a permanent basis so I assume that after the transfer, my parents will not have to pay me any rent?

4) Any other things I would need to consider regarding this topic?

Thank you in advance.

Keep_pedalling

I assume they want to do this because most of their wealth is tied up in their home. You are right to be concerned about the complications. CGT is going to be one income tax is another, (at least for your sibling) you or your sibling dying before they do is a third. A trust will only complicate things further, so all in all a terrible idea.

Yes, they would need to pay rent to a non occupant and they would pay IT on it. And yes they would have to pay rent to a trust 

No stamp duty involved.

With the sort of wealth they and you have some professional advice would be worth taking.

user1977

Has nobody involved taken any professional advice? Did your parents come up with this cunning plan by themselves?

itwasntme001

Keep_pedalling said:

I assume they want to do this because most of their wealth is tied up in their home. You are right to be concerned about the complications. CGT is going to be one income tax is another, (at least for your sibling) you or your sibling dying before they do is a third. A trust will only complicate things further, so all in all a terrible idea.

Yes, they would need to pay rent to a non occupant and they would pay IT on it. And yes they would have to pay rent to a trust 

No stamp duty involved.

With the sort of wealth they and you have some professional advice would be worth taking.

Yes that is the main reason as the home is worth probably around £1.1m and so it make sense to gift a significant portion of this to manage the IHT liability.  It is also a preferable option to gifting large amount of cash due to my parents potentially needing the cash for medical expenses and care in the future.

Me and my sibling feel confortable about the fact that either of us could pass away prematurely.  Because whether it is part of our estate or my parents', the same tax would have to be payable.

Since I will be moving back with my parents, it might be easier if say the gift it given to me and not my sibling,  No rent would be payable and with say a third gifting to me, my parents' Wills can be changed to reflect this such that my sibling would get 5/6s and me 1/6s of the property to get back to 50-50 share.  I am very unlikely to move out of my parents home, but I can never be sure so yes there is always the CGT complication, and perhaps the rent as well.

It is very early stages in discussion but just want to get my own understanding first before approaching advisors on this matter.

Albermarle

It is very early stages in discussion but just want to get my own understanding first before approaching advisors on this matter.

It is more of an area for solicitors than financial advisors, and there are  firms of solicitors actively promoting various schemes for people to try and avoid IHT and care home fees etc.
It is probably fair to say that in many cases the main beneficiaries are the legal people themselves from their fat fees.

There are many posts on this forum from people who down the line have regretted getting involved in these schemes, and it would have been much easier just to pay the IHT.

itwasntme001

Albermarle said:

It is very early stages in discussion but just want to get my own understanding first before approaching advisors on this matter.

It is more of an area for solicitors than financial advisors, and there are  firms of solicitors actively promoting various schemes for people to try and avoid IHT and care home fees etc.
It is probably fair to say that in many cases the main beneficiaries are the legal people themselves from their fat fees.

There are many posts on this forum from people who down the line have regretted getting involved in these schemes, and it would have been much easier just to pay the IHT.

I suppose that is another question I should have asked in my OP.  Who to actually see to get advice in an unbiased way.  Are there not such a thing as estate planning specialists who can talk through options and recommendations for a flat fee upfront?  Without having any incentives whatsoever for me and my fmaily to carry out any recommendations?

I am not sure what the schemes you mention are about exactly, but I would imagine a "transfer of gift" is a pretty standard thing, nothing overly complex, beyond the issues already highlighted above in this thread.

km1500

another option would be your parents taking out equity release and giving you and your siblings the cash.

The financial implications of doing this should be discussed with a professional

Bookworm105

itwasntme001 said:

Albermarle said:

It is very early stages in discussion but just want to get my own understanding first before approaching advisors on this matter.

It is more of an area for solicitors than financial advisors, and there are  firms of solicitors actively promoting various schemes for people to try and avoid IHT and care home fees etc.
It is probably fair to say that in many cases the main beneficiaries are the legal people themselves from their fat fees.

There are many posts on this forum from people who down the line have regretted getting involved in these schemes, and it would have been much easier just to pay the IHT.

I suppose that is another question I should have asked in my OP.  Who to actually see to get advice in an unbiased way.  Are there not such a thing as estate planning specialists who can talk through options and recommendations for a flat fee upfront?  Without having any incentives whatsoever for me and my fmaily to carry out any recommendations?

I am not sure what the schemes you mention are about exactly, but I would imagine a "transfer of gift" is a pretty standard thing, nothing overly complex, beyond the issues already highlighted above in this thread.

estate planning advice best obtained from a member of Society of Trust and Estate Practitioners (STEP)
About STEP | STEP

you can search for members here: Members | STEP

Grumpy_chap

itwasntme001 said:

4) Any other things I would need to consider regarding this topic?

CGT may be incurred by you and your sister on the share of the property.

You and your sister will lose FTB status (if applicable).

Will impact any means tested benefits claims you or your sister may otherwise be eligible for.

A nasty relationship breakdown could see an ex-partner try to claim half the value of the share of the parent's property as assets of the relationship.

itwasntme001

Can someone confirm if the residential nil rate band (RNRB) is still intact for my parents if they have gifted a share in their residence to me/sibling?

Assuming my parents' share is still worth over £650k (which it would be quite comfortably), would they still get the full nil rate band, i.e. £1m in total?

Any thing i need to be consider with regards to the IHT/NRB/RNRB in respect to the fact that me/sibling owns a share in the property?

itwasntme001

itwasntme001 said:

Can someone confirm if the residential nil rate band (RNRB) is still intact for my parents if they have gifted a share in their residence to me/sibling?

Assuming my parents' share is still worth over £650k (which it would be quite comfortably), would they still get the full nil rate band, i.e. £1m in total?

Any thing i need to be consider with regards to the IHT/NRB/RNRB in respect to the fact that me/sibling owns a share in the property?

Anyone can confirm pls?