Inheritance Tax / Property Funding Questions

Liz18son

My father owns three properties which are mortgage free - (his home and 2 properties which are rented bedsits). He is looking to buy another property to rent but would like to put it into both my brother's and my name to avoid inheritance tax.

a) Should all of the properties have our names added to the title deeds to avoid the inheritance tax bill?
b) Would this cause tax implications for me and my brother regarding the rent received?
c) What would be the best way to fund the purchase of the new property?

All advice would be very welcome.

reddevilled

Liz18son wrote:

My father owns three properties which are mortgage free - (his home and 2 properties which are rented bedsits). He is looking to buy another property to rent but would like to put it into both my brother's and my name to avoid inheritance tax.

a) Should all of the properties have our names added to the title deeds to avoid the inheritance tax bill?
b) Would this cause tax implications for me and my brother regarding the rent received?
c) What would be the best way to fund the purchase of the new property?

All advice would be very welcome.

If your father gifts the other two properties into your names then there would be a potential capital gains tax problem. As you are deemed as "connected parties" your father would have a capital gain on the growth of the property from his original purchase through the value at date of gift. This may be covered by his annual exemption, but is worth bearing in mind. I am not sure if there would be any stamp duty issues also. As he is gifting property there will also be inheritance tax implications if your father does not survive 7 years. If he dies within 7 years a proportion of the assets may become chargeable, depending on his other assets.

For any property which you own part of (legally) you will be taxed on the proportion of rent. If you are higher rate tax payers and your father isn't then this may not be beneficial.

With regard to how to fund the property purchase it doesn 't make much difference if he gifts you the money and you purchase the property, or if he purchases the property for you. They both still fall into the IHT trap of problems if he dies within 7 years. Obviously if a mortgage is taken out againstthe property then the interest will be an allowable deduction for income tax purposes.

I hope this helps a little,

Red

sneekymum

My father died owning two houses and four commercial properties. There was no IHT as he left everything to my mother - but the nill rate band was wasted (this was years ago so no we can't adjust his will). Its too late for us to put the properties in my name as the Capital Gains is huge - so yes, I'd say get him to go for it on the new property - before you have any gain to tax.

One caution though - if you receive Tax Credits they'll be reduced by this extra "income" - so if dad isn't actually letting you keep the money you might ask him to make up the difference.

Richie(UK)

Hi,

You will find it difficult to avoid IHT on the main residence in this way. This is because of the "Gifts With Reservation of Benefit" rules - ie your father wouldn't really be divesting himself of the house, he would actually still be living there.

That said, depending upon its value you may find that it is covered by the NRB. If your father is married then it may be worth setting up a NRB Discretionary Trust. This avoids the wasted NRB problem on an inter-spouse transfer that sneekymum refers to.

andrew164

Hi all

While we are on this topic could I ask for some rough guidance concerning a idea that we are having as a family.

My Grandparents own their property and my Parents own their's, and would like to sell up and pool the resources together to purchase a property in which we can all live.

What are the pitfalls we will need to look out for?

Thanks v much in advance.

--
Andrew

sneekymum

Hello Andrew - here's my amateur's angle on this....

If your grandparents were to sell up and give the money to your parents to buy a bigger house in your parents name, and your grandparents' estate plus that money given (even after seven years) comes to more than the IHT threshold then they would be enjoying a pre-owned asset and the tax man would count the money given as part of their estate for IHT.

They could avoid this by paying your parents a market rent.

They could avoid being accused of giving away money to avoid paying for council care by getting their names on the deeds. They would still have this asset but it could not be sold (who would want to buy a house with your parents living there rent free?).

If your grandparents' estate is too small for IHT it would be best to keep it seperate anyway (tennants in common not joint tennants) as they could leave it to you not your parents and avoid your parents wealth going way over the IHT threshold.

This all depends on numbers - ££££££ -

Nice question though.