Inheritance-PROPERTY

Unknown

Could anyone assist with an inheritance issue regarding a property?

My father lives alone and is elderly(currently in good health). He wants me to inherit his home(£350k)when he passes away however does not know how to go about this so that the government do not receive most of it through inheritance tax, or, if he has to go into a home when/if he becomes infirm(then he would have to pay the home costs from the sale of his house and nothing would be inherited by myself).

There is a problem I see in that he has no income or savings and that he has about £30k tied up from a secured loan on the house with a building society which the welfare state is paying monthly on an interest only basis.

How can he pass on his property or the sale of it to me in this case, and if it can be done , is it possible to not pay inheritance tax etc

Someone has mentioned he should sign the home into a 'family trust' or give me the house but with a clause stating I have no rights to it whilst he is alive so that he may live there until that day comes.If the latter is possible how can I get around the £30k issue as the building society I assume own part of the house.

Can any one shed any light on what can be done here, as I do not know, nor does my father. I also find it very uncomfortable and embarrassing talking to him about the subject.

thank you

margaretclare

Hi

This is a question that comes up regularly - see another thread below this:

http://forums.moneysavingexpert.com/showthread.html?t=1538

However, a few questions:

Your father is elderly - how elderly?

At present his house is worth £350K, you don't know how long he's going to live, whether this figure will go up or down. Inheritance tax at present is anything above the level of £265K, so IHT would be payable on the amount of £85K (using present figures). The £30K secured loan would of course need to be paid before you could receive your 'inheritance'.

However, it makes no sense to me for a man to be living alone in a £350K property and having no income (apart from SRP presumably?) and having his loan interest paid by the government.

What would make much more sense would be for your father to 'downsize', sell the house, buy a smaller and more easily-manageable home, release money which he could then use to fund a much more comfortable retirement for himself and pay off the £30K loan as well.

It's worth remembering that it's only a minority of people who need to go into long-term residential care. The vast majority manage to live at home until they die, even with a package of care coming in. It would make sense to live somewhere which was much more user-friendly e.g. without stairs, with a modern bathroom with shower (it can get dangerous climbing in and out of the bath if you become infirm), less garden to worry about - those kind of things. It's also better to take these steps while you're still in good health, as your father is.

Best wishes

Aunty Margaret

sneekymum

Have to agree with Aunty there

But

If you/he really can't part with the house...

You need to pay off that mortgage & get your name on the deeds either as well as his ("tennants in common" & state the percentage owned by each), and start charging him a market rent for his use of your share of the property. This last step is vital to avoid the pre-owned assets rules. It would be best if you could come up with a lump sum to pay him for your share of the house (a mortgage? ) - money could be invested to produce income from which he could pay his "rent" and you could pay the mortgage. There are tax allowances for renting rooms out in your own home, but if you're not living there you'll need to pay income tax on the rent received. This does have the 'benefit' that the tax man will know all about it for pre-owned assets purposes. You may need to top up such a mortgage out of your own pocket - you have to do the maths to see if its all worth it.

Paying for your share gets round the need for him to survive seven years if it was a gift. Even if it was a gift though you'd still need to charge him rent. You should pay a fair market price for your share too. You may need to pay an estate agent to get a paper valuation of that - papers are vital to keep for the tax man...

If he lives many years and the house increases in value you could see a 'capital gain' when you come to sell - but that would only be on the portion that he signed over now and there is a CGT allowance (currently £8,500). For this reason it would be best to keep all records and receipts as eventually such things as survey fees and mortgage arrangement fees and solicitors fees can be offset against any CGT bill. Also improvement (but not maintenance costs). There are things you can offset against income tax too - e.g. insurance - though this is more complex in a part-owned property. Might be worth getting an accountant...

You haven't mentioned any other siblings who might want a cut....

The embarassment thing. - Paying IHT because you were too embarassed to talk about ways round it is akin to those countless thousands who die from curable illnesses who couldn't bring themselves to mention it to their GP.

The nursing home thing - Should the council require that he sells the house to pay for care home fees you can rest assured that no one would want to buy it with you living in your half rent free...

DavidLaGuardia

sneekymum wrote:

Have to agree with Aunty there

But

If you/he really can't part with the house...

You need to pay off that mortgage & get your name on the deeds either as well as his ("tennants in common" & state the percentage owned by each), and start charging him a market rent for his use of your share of the property. This last step is vital to avoid the pre-owned assets rules. ...

I am not so sure that is effective as the rent is taxable on the chld in the same way under pre-owned assets an artificial transfer would be taxable on the parent

margaretclare

Hi Unknown

As sneekymum outlined, your father would need to pay an economic rent, and she mentioned investing some of the money to produce an income to pay this, because you said originally that he has no income/savings of his own. If he simply 'gave' the house to you, transferred ownership but continued to live there rent-free, this is going to be seen as a scam by the Dept of Revenue & Customs (formerly Inland Revenue) and the local authority - which it is. Investing some of the equity to produce an income to pay rent from does seem an incredibly convoluted way of going about things, and as David has said, tax would need to be paid. It seems like a no-win situation, and I return to my original point. Why does one older man need to live in a house valued currently @ £350K when there are smaller, more manageable places that might suit his needs better - and the sale of the £350K house would free up some income he could use to make his remaining years more comfortable.

Best wishes

Aunty Margaret

sneekymum

Couldn't agree more Aunty

But as an exercise in exploring ways in which Unknown might keep the house (say for e.g. its been in the family for 600 years..) its interesting and may be of use to another reader.

Unknown

Thank you for your replies.

My father refuses to downgrade due to sentimental reasons(been in family for years and he wants to pass it on to me and then my son etc). Ihave told him to think of himself and downgrade so he can have an income and go on holidays etc and have less gardening etc , but he refuses to listen and wants to pass the house on to me. I have also told him this looks very unlikely. He is very worried that it will not be inherited by me but by the government!

This problem however looks like it will not be solved and the government will get his house one way or other.

Im afraid all the above solutions look a little complex for us as we are not used to such matters, unless a solicitor or accountant can help out.

Any other ideas or people to contact?

sneekymum

I believe there are IFAs who specialise in these things. Though the answer will always be complex.