Lifetime Gift and Inheritance Tax

ThinkBig_2

Hi,

Both my parents (who are retired and receive the basic state pension) live in a small house (and a small mortgage) which requires a lot of updating and does not have a downstairs toilet which they both need now. Especially since my mum has had a total knee replacement operation. Their house is worth £340K.

So to help them I want them to move into my house which does have a downstairs a toilet and is in a very good condition.

I discussed the possible ways of doing this with a solicitor who suggested that as my parents do not want to take on another mortgage (and they probably won't get one), they could sell their house and then pay the money to me via a lifetime gift.

This would allow me to buy another house with a mortgage and also my parents can live in my current house and pay a nominal rent to me. The rent would then cover the expenses to maintain the property.

The solicitor would then draw of 2 deeds for the lifetime gifts, one for each parent to me and my wife.

Would there be any inheritance tax issues with this? (If both parents split the monies equally from the sale of the house)

Also, my parents currently get help with their council tax, but if they move into my house would they still be entitled to council tax help?

badboyblue

ThinkBig wrote: »

Hi,

Both my parents (who are retired and receive the basic state pension) live in a small house (and a small mortgage) which requires a lot of updating and does not have a downstairs toilet which they both need now. Especially since my mum has had a total knee replacement operation. Their house is worth £340K.

So to help them I want them to move into my house which does have a downstairs a toilet and is in a very good condition.

I discussed the possible ways of doing this with a solicitor who suggested that as my parents do not want to take on another mortgage (and they probably won't get one), they could sell their house and then pay the money to me via a lifetime gift.

This would allow me to buy another house with a mortgage and also my parents can live in my current house and pay a nominal rent to me. The rent would then cover the expenses to maintain the property.

The solicitor would then draw of 2 deeds for the lifetime gifts, one for each parent to me and my wife.

Would there be any inheritance tax issues with this? (If both parents split the monies equally from the sale of the house)

Also, my parents currently get help with their council tax, but if they move into my house would they still be entitled to council tax help?

Would a cleaner way not be for them to buy your house from you ,as tenants in common,with the proceeds from the sale of their home, gift you the excess and leave you (via trust on the first death) the house in their wills?
This way you won't be stung for CGT on the sale of your "non principal residence" following their ultimate demise?

PS
On the figures you quote IHT would be unlikely to apply in either scenario.

tjs10

If your parents slpit the proceeds from the sale of their house and then gifted the money to you then you should be OK under inheritance tax as the individual gifts would be under the IT threshold.

However, should either (or both) of your parents pass away within 7 years of the gift and theie Estate is above the IT threshold then you may still be liable for some IT.


Some information on Inheritance Tax calculations on Lifetime gifts can be foiund here:

http://www.hmrc.gov.uk/cto/customerguide/page6.htm#7


It probably wouldn't be the case here but another thing to be careful of is that HMRC do not look favourably on some methods of transferring property (or interests in property) to dependents as a means of avoiding IT when the parent still retains use of the property.


Therefore if a parent transfers the ownership of their house to their child but remains resident in the house at nil or peppercorn rent as a means of trying o avoid Inheritance Tax, the HMRC will often ignore such transfers for the purposes of tax calculation.


As everyone's personal circumstances are different & the full situation cannot be discussed fully on this forum I would recommend you take independent financial advice on this matter before committing yourself to anything based solely on the (albeit helpful) information provided by posters on here, myself included!

margaretclare

There is also the possibility of them doing equity release which would enable them to pay off the existing mortgage and free up some funds, which are now going on the mortgage, for some home improvements. Exactly what we did in 2003, although we already live in a bungalow, but one which has needed upgrading over the years including a new roof (2006).

Incidentally, anyone who has either knee or hip replacement surgery is taught how to do stairs. This type of surgery is meant to restore mobility, not limit you to ground-floor living.

Your parents need to be clear about what they want rather than what you think they may want. Your intentions are no doubt of the best, but your parents may be very independent and have their own ideas, which must be respected.

Margaret

ThinkBig_2

Thanks to all those who replied to my original query on Inheritance Tax and Lifetime gifts. You have given me a lot of useful information which I need to consider and discuss with my parents. I really do appreciate your time spent on answering to my post.