Property as tenants in common or sole name to help with IHT planning

Oppy2023

My father put his home in both our names as tenants in common way back in 1990. He is now selling up and buying another house. He asked if I would be tenant in common once again. I said yes but then I thought for inheritance tax it would be better for him to have the property in just his name and leave it to me, to increase IHT threshold. He thinks not and feels that if it's tenants in common the council can't take the home to cover care home costs. 

I've been reading about deprivation of capital and feel that if the council want to get money back they will do anyway.

Any thoughts on either scenario please?

Keep_pedalling

Your father cannot actually sell the house alone you have to both agree to sell and unless his share (plus any savings he has) will cover the cost of the new place you will have to be involved in the purchase as well.

Assuming you have not lived with him the entire time since he gave you a share in the property you will have a CGT liability that will need to be paid on the gain in value of your share.

Fir IHT purposes unless this was your home for the 7 years following the gift, it will be treated as a gift with reservation so the whole house still forms part of his estate not just his share.

Oppy2023

Thank you for your reply.
I have LPA for Dad so I am in charge of selling his house and organising the purchase of his new one. my CGT will be paid from the sale and he will be adding extra funds for the purchase. I was told that with Tenants in Common he would only be able to add his half of the value of the house to increase the IHT threshold so adding £100K up to £425K where if he left the whole house to me the IHT would be £500K.  Given that we are going to be handing out a large chunk of cash to IHT anyway I'm keen to minimise this. 

Keep_pedalling

If you don’t live in the house and he is not paying you full market rent for your share then this was a gift with reservation of benefit so is not subject to the 7 year rule and for IHT purposes still forms part of his estate. 

Is he a widower?

elsien

Deliberate deprivation of assets comes into it where there is a clear link between getting rid of the asset ( in this case creating the tenancy in common) and avoiding care home costs.

Given that he initially did this in 1990 when presumably he was comparatively fit and healthy and the prospect of care was not on the horizon, it’s less likely to be an issue here.

I’m just going to throw out the usual caveat around if you guys fall out, or you get divorced/get in debt/go bankrupt/become ill or lose your job and need to claim means tested benefits, ownership of half a house that you don’t live in will impact on all of these. Which he may well have already have considered, but just in case.

Oppy2023

He is not a widower, he and my mum divorced in 1985. He is 83 and not in the best of health.

 I'm becoming more and more befuddled with this carry on! He has not paid rent, his rationale for putting the house in my name in the first place was to avoid inheritance tax, this is going back to when IHT was paid by very few ordinary people, now of course things are very different and the tax burden has shifted to see more people shafted!

He thinks that the new house will just pass to me although he conceded it would attract tax, I'll be stung for CGT again but hopefully  it won't be over my cgt allowance this time. It's his thinking that it would be safe from the council which is prompting him to do it this time. 

Thank you everyone who has tried to help me make sense of this,

Bookworm225

so you are part owner of a property you do not live in?

you (as POA) are going in as part owner of a new purchase?

That is a disgraceful abuse of POA since that means the purchase will incur higher rate SDLT on the entire purchase price as it is not a replacement of your own main home and is therefore an  "additional" property for you.
The IHT and DofC consequences have already been mentioned (subject to values involved of course)

elsien

Bookworm225 said:

so you are part owner of a property you do not live in?

you (as POA) are going in as part owner of a new purchase?

That is a disgraceful abuse of POA since that means the purchase will incur higher rate SDLT on the entire purchase price as it is not a replacement of your own main home and is therefore an  "additional" property for you.
The IHT and DofC consequences have already been mentioned (subject to values involved of course)

From the sound of it, Father has capacity to make these choices and the OP is simply  using the power of attorney to make the transaction on behalf on his very his clear instructions. Bearing in mind that the current property is already half theirs so in that respect the situation is not changing.

The OP is not further financially benefitting from this. It  is very different to the situation where the donor no longer has capacity, and the LPA is half inching their assets.

sheramber

If he has sufficient other capital/ savings that could be used to pay for his care,  

if he went into care what would happen to the house if no-one would  be living in it. 

 Your  half would be protected  but no reason why  the house could not be sold , you get half proceeds and the other half used for his care , if necessary. 

If it is left empty you could  have  200% council tax to pay, you would need to advise insurance company house was empty. 

He may not need to go into care but could get care at home  instead. 

A lot to consider. 

dales1

Oppy2023 said:

hopefully  it won't be over my cgt allowance this time.

But the cgt allowance has been chopped to just £3,000.

So it provides very little relief, either this time or next.

Keep_pedalling

Oppy2023 said:

He is not a widower, he and my mum divorced in 1985. He is 83 and not in the best of health.

 I'm becoming more and more befuddled with this carry on! He has not paid rent, his rationale for putting the house in my name in the first place was to avoid inheritance tax, this is going back to when IHT was paid by very few ordinary people, now of course things are very different and the tax burden has shifted to see more people shafted!

He thinks that the new house will just pass to me although he conceded it would attract tax, I'll be stung for CGT again but hopefully  it won't be over my cgt allowance this time. It's his thinking that it would be safe from the council which is prompting him to do it this time. 

Thank you everyone who has tried to help me make sense of this,

Unfortunately a lot of people don’t really understand IHT laws, and some make ill informed decisions because of it.

Going forward I would look to take as much equity out of the current house as you can by reducing any ownership in the new house to the minimum that is practical. This will reduce any further CGT on the sale of that property, and should your father survive a further 7 years would reduce his IHT liability.