keeping property in the family

IrishIvy

My daughter wants to sell her house (worth @1,300,000 and take over mine which is wroth £1 million more (not fancy houses, just in great location SW London).  I'd like to build a granny flat where my garage is and move in there.  I have an equity release mortgage (taken out for my other daughter) which I can pay off in a couple of years.  What I'd like to know is - can I sell her my house for less than the market price - would I be better off living with them in terms of inheritance tax.  My biggest concern is what the tax situation will be when I die - I assume that if I die within 7 years tax is applicable so would it be at what she bought it for or would it be valued for market value for tax? I'm really worried they'd have to sell it to pay inheritance tax.  Is is a feasible idea? I'm happy to live in a small separate building I'd have built for me - as a granny flat.
We're keen to keep the house as they'd love it and I'd be happy to be here but in a smaller space. I could pay off the equity release with the funds they'd have from selling their house.  Any thoughts welcome as it seems very complex and I suppose depends on what government is in when I leave this mortal coil...

Keep_pedalling

The situation is rather complicated as you will remain living in part of the house. With an estate this size you should be taking paid for professional advice.

Yorkie1

Have you also double checked whether you are likely to get planning permission for the conversion of the garage / demolition of the garage and build a new propery?

MobileSaver

IrishIvy said:

can I sell her my house for less than the market price - would I be better off living with them in terms of inheritance tax.  ...  I assume that if I die within 7 years tax is applicable so would it be at what she bought it for or would it be valued for market value for tax? 

The broad-brush high level summary is that if you continue to live in the property then for both Inheritance Tax (IHT) and any future Care Fees you'll be considered to still own the property whether you die next year, seven years from now or seventeen years from now.

To answer your specific question, yes the property will be valued at market value at the time of your death. What that will mean in terms of IHT payable depends on numerous variables that as others have said you will need expert advice on.

Debt_Overload

For the purposes of funding your own future nursing or home care, selling to your daughter significantly below market value will be considered deprivation of assets and there is no seven-year limit on this. Make sure you understand how this could affect you.

I haven't even touched on inheritance tax because i don't know the threshold and I think it's more likely you'll need some level of care rather than just passing away instantly. This could mean there's a lot less to even inherit than you expect. 

Your question is one nearly everybody thinks about, essentially, how do I stop the taxman getting my home, I'd rather leave it to my kids. But you can't do so with such a simple move as semi-gifting it to one of them, the government already knows people would all do this.

More than anything else your proposal exposes you. Get professional advice, pay a solicitor, ask how best to protect your assets and have them draft your will at the same time.