IHT on cash gift used to buy joint house

jitterbug67

To be clear, I am not trying to dodge IHT, just trying to figure out how much I need to have aside for it.  When we came to this arrangement, I assumed my father's estate would be the £360k he gave me to buy my house and his £20k savings, ie £380k.  I thought the cash would be treated as a gwr and I thought I would be taxed on this amount less the £325k allowance.   POAT did not occur to me - only learnt of its existence yesterday!

Bookworm105

jitterbug67 said:

To be clear, I am not trying to dodge IHT, just trying to figure out how much I need to have aside for it.  When we came to this arrangement, I assumed my father's estate would be the £360k he gave me to buy my house and his £20k savings, ie £380k.  I thought the cash would be treated as a gwr and I thought I would be taxed on this amount less the £325k allowance.   POAT did not occur to me - only learnt of its existence yesterday!

I think your scenario is a POAT not a GWR 

Jeremy535897

It is very hard to judge. First, there is the POAT charge that your father should have been declaring from when he moved into the house. You can elect for a POAT to be a GWR, but the time limit has expired. The cash will cease to form part of your father's estate when seven years have passed, although the budget may change that. The issue is whether there is an underdeclaration of tax, and that depends on the calculation of the deemed rent.

jitterbug67

Thank you for your help all.  I guess I'll wait for the budget then get some advice.

Bookworm105

Jeremy535897 said:

The cash will cease to form part of your father's estate when seven years have passed,

7 year rule is irrelevant if a POAT has been created, as seems to be clear cut in this case
I agree however that whether income tax is physically payable will depend on whether the deemed rent is above the POAT threshold (£5,000).
POAT: Could it affect you? - Tax Insider
"A popular example that allowed a parent to gift, but still live in, the family home involved the parent selling the family home and gifting the cash to their child. The child then used the cash to buy another family home and the parent then lived in the new family home. As the parent had not ‘continued to derive benefit from the gifted asset’, the GWR rules were generally not flaunted. They were deriving benefit from the new home, which had been bought with cash that was removed enough from the original home, and it could not be traced back to it under the GWR provisions.

The mechanics of the charge
It was this type of scheme that led to the introduction of the POAT regime (FA 2004, Sch 15)."

Jeremy535897

The POAT charge is effectively a penalty for doing something that is almost, but not quite, a GWR. The GWR rules consequently don't apply, but I don't think that stops the initial gift in, from memory, 2018 from being a PET that would be chargeable if father died within seven years of making it (although his estate may be too small for it to matter anyway).