Inherited property and FTB status

se2020

Children of the deceased have been left 1/4 shares in a property.

The property is currently being used as a holiday cottage / air b&b plus the children and other family members use it themselves fairly regularly.

The children would like to keep doing this.

3 of the 4 children currently have FTB status (along with the relevant isa savings etc).

Is it possible to preserve the children's FTB status and retain the property?

One suggestion is for the 3 to decline there shares and pass it all to the 4th who is already a home owner but would that result in any extra stamp duty or 2nd home council tax?

Another idea was to form a limited company to run the cottage but would that mean the property is not being passed to decendents and therfore lose the extra IHT relief?

This must be a fairly common situation so just wondering what the options are?

Cairnpapple

What does the rest of the estate look like, is there also a family home? Who is the rest of the estate being passed to, is it the same 4 children?

se2020

The deceaseds home was sold about 4 years ago with mist of the funds used for care in the final years.

The estate holds a value of around £475k.

The cottage is around £300k with the rest in cash.

Gifts in the will totaling about £25k with the remaining £150k split equally before the 4 children. Less any IHT.

jaybeetoo

You really need to ask a qualified solicitor and not rely on a forum. This is a very specialist area of tax law.

silvercar

"One suggestion is for the 3 to decline there shares and pass it all to the 4th who is already a home owner but would that result in any extra stamp duty or 2nd home council tax?

Another idea was to form a limited company to run the cottage but would that mean the property is not being passed to decendents and therfore lose the extra IHT relief?

The 3 could do a deed of variation, to vary the will so that all the cottage goes to the 4th. That works as long as none of the 3 are in receipt of benefits or are minors. That keeps it going to a descendent.

The 4th could then transfer it to a limited company. No CGT if it is at the value it was on the death, so don't wait forever. There would be SDLT by the company on the purchase of the property from the individual. The company could have the 4 as shareholders of equal shares. Company owned and a holiday let would attract business rates rather than 2nd home council tax, but that could be the case with a holiday let that is individually owned, depending on various factors.

Cairnpapple

I don't think the holiday cottage going to a descendent makes any difference to the IHT? The residential nil rate band only applies when passing on the main home. Although downsizing rules may still make the residential nil rate band available given that the main home was sold for care.

Was the deceased a widow/er?

Keep_pedalling

Not something I would want to inherit if I did not already own my own home. FTB status will be lost and an addition 5-8% in tax when they do eventually buy there own home (depending on which part of the UK they purchase).

Declining their share (via a deed of variation) would avoid it but they would be throwing away their inheritance( and a decent deposit for their first home). Transferring it to a limited company would certainly result it stamp duty needing to be paid as well as complicating things for all concerned.

If I was one of the three, I would insist in either it being sold or being bought out of my share while the property still forms part of the estate.

se2020

https://forums.moneysavingexpert.com/discussion/comment/82033916#Comment_82033916

WhaWhat would be the maths to work out the loss (in FTB benefits) if they just left things as-is and accepted ownership?

Presumably, the gain (although it's not accessible as cash) is just 1/4 of the value of the property.

The loss is, extra stamp duty, and lost of lisa/ftbisa bonus/penalty.

Obviously there are costs etc. involved with running the property but the 4 of them have been doing that for the last few years anyway and it is actually profit-making.

sheramber

https://forums.moneysavingexpert.com/discussion/comment/82034087#Comment_82034087

If they withdraw money from the Lisa the penalty is a 25% charge on the amount withdrawn.

Or, they can leave the money in the Lisa until 60 years of age or terminally ill with less than 12 months to live.

The extra stamp duty depends on where in the UK they buy and how much the property costs.

Keep_pedalling

Someone purchasing their first home in England for £300k would pay no SDLT, anyone else would pay £5k. On top of that an extra 5% would need to paid in additional SDLT taking the total up to £20k

silvercar

https://forums.moneysavingexpert.com/discussion/comment/82034149#Comment_82034149

The additional SDLT has no limit, it is 5% of the purchase price of the new property. So as well as losing FTB status, the extra SDLT is due. The exemption from this for people that own more than one property is if you are replacing your main home. Owning an additional property ie your new first home, when you already own (part of) a holiday let means additional SDLT on the value of the new home.