Gifting house, CGT and IHT

makemineapint

Hi all, this is my first post so please be patient if this has been addressed already. 
My wife and I are thinking of gifting our 4 bed house to our son who has 3 young children ( recently divorced) abs is staying with us.  He cannot afford to buy, that's why we are considering gifting with no attachment.  We will move out,  firstly to have a holiday then short term let's and finally but a small bungalow.
So the questions i have  are.
1) as its going to be his residential home , there is no IHT if we live more than 7 yrs after gifting. However if one of us passed away would there be IHT liability? I cannot find an answer to this. 
2. I understand that there is no capital gains tax as it will be his residential home.. we will be gifting our only residential home. Have I got this right

 Thanks in advance for your help

Keep_pedalling

CGT will not be an issue, but more info needed regards IHT. What is the value of your home? How much do you have in other assets?

Bookworm105

given you will not be living there after the gift you are correct that it falls within the 7 year gift rule (provided of course you never return to living in it whether owner or not).

 Death within the 7 year period would trigger IHT, but, as comment above, whether your estate is exposed to IHT in the first place is, of course, the more relevant question in that context.

makemineapint

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

Bookworm105

makemineapint said:

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

read the example under gifts and lifetime transfers, it covers what happens with death during the 7 years 

Work out and apply the residence nil rate band for Inheritance Tax - GOV.UK

also p[lease take professional advice regarding what is called "downsizing relief" because although you eventually intend to purchase a replacement (smaller) property, there will be a gap when you do not own a house and have gifted your previous one under the 7 year rule. Death in that period may mean complete loss of the nil rate residence band on the original house. That matters because it appears your respective estates are individually worth > 325,000 in total (share of house + share of everything else) 

What Is Downsizing Relief? The Benefits Explained

Keep_pedalling

makemineapint said:

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

If you gifted the house and both died within the first 7 years then jointly under the downsizing rule you would still have  £1M of exemptions so if your total net worth is currently more than that the same amount of IHT would be payable as it would have if you had never made the gift. If it is under that then there will be no IHT to pay in either case.

If you both survive 7 years then your allowances stay the same but £300k drops out of each of your estates. 

Bookworm105

Keep_pedalling said:

makemineapint said:

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

If you gifted the house and both died within the first 7 years then jointly under the downsizing rule you would still have  £1M of exemptions 

but for downsizing relief to apply it is a condition that they need to have purchased a replacement home

they intend to occupy short term lets for at least an initial period after the gift so will not have met that condition 

Keep_pedalling

Bookworm105 said:

Keep_pedalling said:

makemineapint said:

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

If you gifted the house and both died within the first 7 years then jointly under the downsizing rule you would still have  £1M of exemptions 

but for downsizing relief to apply it is a condition that they need to have purchased a replacement home

they intend to occupy short term lets for at least an initial period after the gift so will not have met that condition 

No, there is no such condition, it still applies if you move into rented accommodation, move in with family, or move into residential care. If the OP subsequently buys a bungalow with a value of ££350k or more then the downsizing rule no longer needs to be claimed as the exemptions will be covered by the new purchase.

Keep_pedalling

A couple of things that should be considered if you do this.

1. Get your son to make a will if he doesn’t already have one, especially if any of his children are minors. 

2. If you have more than £1M in assets then consider getting term life insurance to cover any IHT that might be due on the gift if you both meet an untimely end within the 7 years. This is something we did after making large cash gifts to our children. If you are in good health this is a cheap option for mitigating IHT.

makemineapint

Thank you Keep_Peddling and Bookworm105. You have answered my queries. The link Bookworm105 provided is extremely helpful. Thank you both.  We are now able to make informed decisions 

Bookworm105

Keep_pedalling said:

Bookworm105 said:

Keep_pedalling said:

makemineapint said:

Hi thank you for your comments.  To clarify re IHT  the house is worth £600k . If we kept it till our demise then as I understand it IHT is triggered above £1m as my wife's estate or mine passes to the other. So does still apply if we gift the house? Or does it trigger above £650k ( joint ownership) or trigger at just £325k ( or £500k )on first death. 
I hope it makes sense 
Thanks

If you gifted the house and both died within the first 7 years then jointly under the downsizing rule you would still have  £1M of exemptions 

but for downsizing relief to apply it is a condition that they need to have purchased a replacement home

they intend to occupy short term lets for at least an initial period after the gift so will not have met that condition 

No, there is no such condition, it still applies if you move into rented accommodation, move in with family, or move into residential care. If the OP subsequently buys a bungalow with a value of ££350k or more then the downsizing rule no longer needs to be claimed as the exemptions will be covered by the new purchase.

I stand corrected 

How downsizing, selling or gifting a home affects the residence nil rate band - GOV.UK