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Can I give away my home to avoid inheritance tax?

In most cases the home makes up a large part of an estate for inheritance tax purposes, but you have to be careful if you try to give away your property to reduce the bill.

 

by Michelle McGagh on May 16, 2012 at 15:15

Can I give away my home to avoid inheritance tax?

As house prices have shot up over the past decade, they have pushed many people’s estates over the inheritance tax threshold. So could giving away your house be a way to reduce your tax bill?

Inheritance tax isn’t the only reason people want to give away property. Many people want to reduce their estate to avoid paying for nursing homes and care costs and others see their children struggling to get on the property ladder, or buy a bigger home for their own family, and want to help them out.

However, gifting away your home or signing over the deeds to a loved one is not straightforward and you should weigh up the pros and cons before doing so.

Can IHT be avoided if I give my property away?

Homeowners are entitled to give their home away whenever they want. If your home falls under the £325,000 IHT threshold, known as the nil rate band, then there is no IHT liability. However, if your home is worth more than this amount then the person you give it to could still be liable to pay the 40% IHT charge and other tax charges.

Giving your property away is regarded as making a gift. Although there are some allowances for making gifts every year, the taxman is very particular about large gifts and has put in place a ‘seven-year rule’.

This rules means that if you make a gift outside the normal perimeters, like gifting a property, then you have to survive for seven years after doing so before it falls outside of your taxable estate. As our recent guide on 'how to avoid IHT' explains gifts where the seven-year rule applies are known as ‘potentially exempt transfers’.

If you die within seven years of gifting then the property falls back into your estate for IHT purposes and the person who received the gift will be liable to a tax charge as well. The tax charge reduces depending on how long they have had the gift.

What about giving them the profit from a sale?

If you sell your home and give the money to your children you still have to live for seven years before the money falls outside of your estate. Everyone is allowed a certain allowance for gifts each year but a house sale is certain to exceed those limits.

Are there other tax charges?

Gifting a property could open you up to other tax charges, such as capital gains tax (CGT). If you are giving away your main home, known as your ‘principle primary residence’, then there is no CGT charge.

However, if you are giving away a second property or holiday home then you may be liable to pay CGT on any increase in value that has occurred between buying the property and giving it away.

Can I continue to live in the house if I give it away?

You can continue to live in your property if you give it away but it will completely change the tax implications for you and the person you gift it to.

If you remain in the property and do not pay rent then the gift becomes a ‘gift with reservation of benefit’ – meaning you reserve the right to benefit from the property.

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65 comments so far. Why not have your say?

The Wills Man

May 16, 2012 at 18:05

"This includes your half of any property that you own jointly with a person" This is not quite correct. If a property, (or bank accounts/investments etc.), are owned "jointly", that is in joint names, the WHOLE value is taken into consideration as technically all "joint" owners own 100% of the asset.

Joint ownership is a minefield and different tax implications come into play, but as an example:

Mr & Mrs A own a house in joint names. Mrs A goes into care and while Mr A lives there the value of the home is disregarded. If Mr A dies while Mrs A is still in residential Care then the WHOLE value of the house is considered hers and can be claimed by the local authority.

It is possible, under careful management, to avoid this trap, but specialist advice is needed.

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Anonymous 1 needed this 'off the record'

May 16, 2012 at 18:16

More considerations:

If you give your home to your child, and they die, then your home will be part of their estate - going to who? after the tax on their entire estate.

And they could need to "go into care" in which case the 'council' may still take ownership of your home.

So any give-away needs to have very carefully worded requirement that you have a (your) lifetime right to live in the home at a specified rental cost including appropriate rental charge uplift calculations.

You should also make appropriate arrangements to address the possiblity of you, or the new owner of the home needing to go into care for a period of - say 6 to 9 months.

Or, maybe them becoming unemployed for a couple of years, or more

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Anonymous 2 needed this 'off the record'

May 16, 2012 at 18:17

All this hassle to avoid tax. Why not just pay the darn IHT generated from the unearned capital gains? The younger generation have enough things to pay for without adding care-home fees.

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Dennis .

May 16, 2012 at 19:00

I heard about someone who signed his house over to his daughter. She was tragically killed in a car accident and the house became her husband's, he then remarried and suffered a divorce a few years later. I don't know how it got sorted out in the end but this is not the sort of nightmare scenario to have in your twilight years.

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Richard O'Shea

May 16, 2012 at 20:05

IHT 40%?

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Franco

May 16, 2012 at 20:38

1) The IHT on a home worth more than $325K is not 40%, it is 40% of the difference.

2) It is not the tax man who made the 7yr rule, it is the parliament

It is sloppy language like that that keeps people confused.

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82 yo

May 16, 2012 at 21:16

If Lolly is going to give a general review of the problem it needs to be careful to highlight the omissions and advise the reader to seek legal advice - there are differences in gifting the house with the owner remaining as joint tenant to that of tenants in common - the capital gains depend on owner's position as home owner etc - all a minefield for the unaware .

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fred428

May 16, 2012 at 22:31

Are there any tax exceptions if you have a grownup child who is disabled and

will need long term care ?.

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Dennis .

May 16, 2012 at 23:45

What about the situation where your grown up children live at home permanently and you die or go into care. Do they get booted out to pay IHT or care fees?

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alex flemming

May 17, 2012 at 07:35

my partner owns a property on a buy to let and has not lived in it,shes had it 7 years and it comes under the 325000 bracket will she pay 40% if its sold and if so is there a way round it ?

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Nick

May 17, 2012 at 07:55

Fred/Dennis this was all covered in your level 4 exams wasn't it?

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Hotrod

May 17, 2012 at 09:25

In my opinion the examples given are hypothetical scenarios which most Citywire readers will not encounter.

This is my take on the subject:

You can eliminate people living in rented accomodation, property which is still mortgaged at the time in question, or is subject to an equity release contract.

The number of people affected can be further reduced if you take into consideration that the average house is worth well below the IHT threshold.

I would hazard a guess that you are only referring to the top 10% of society. I don't think that people living in houses of this value need lecturing about how to manage their financial affairs. In my opinion people who are fortunate enough to be in this position usually have additional and more liquid assets other than their house and being people with enquiring minds will have given the matter some prior thought.

As regards selling one's house at the onset of moving to long term care. Surely this is the best option. Your financial affairs will be much easier to manage if they solely consist of liquid assets.

However it is my experience that local authorities will do everything possible to delay that decision as long as possible, such as help in the home, and care by district nurses. Even after admission there is no need to make the decision final and irrevocable straight away. The patient can be admitted on a temporary basis untill a clear and well defined assessment has been made.

Also: I read a statistic somewhere that the average length of stay in a care home by someone who is physically terminally ill, is eighteen months/two years, so even if costs are as stated, they will not absorb all of the sum realised on the sale of the house.

Finally, I believe that the most common reason for needing long term care is dementia. A person who does not know whether they are living on this earth or fuller's earth is hardly likely to be worrying about how much IHT their decendants will have to pay.

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Dennis .

May 17, 2012 at 09:25

Nick, I did a PhD in Chemistry and I am pretty sure it wasn't mentioned.

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The Wills Man

May 17, 2012 at 10:13

@Hotrod. Unfortunately your view is rather simplistic and uninformed. More than half of my clients have a potential IHT liability and they certainly do not come from the top 10% of society. In fact with few exceptions they are surprised if not astonished at their net worth.

The average stay in residential care is much longer than you suspect, and the rules only apply to long-term residents not respite care. The average fees is currently £35k pa and would diminish an estate to very little over a period of 5 or 6 years as fees increase.

Care at home is not provided free unless NHS driven and although costs are significantly less most people will eventually need residential care as their abilities diminish.

Terminally ill people come under NHS and therefore are exempt.

Dementia affects the family more that the sufferer, and almost all caring parents would prefer their children to have a benefit from their estate. Seeing your Mother/Father suffer from dementia and knowing that all they worked for is being taken in "old age tax" is not conducive to apathy.

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andrewva vaughan

May 17, 2012 at 10:22

i know someone who signed his house over to his son a year later his daughter in law divored his son the son had to sell the house there so many things that can go wrong my advice is simple DON T DO IT

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The Wills Man

May 17, 2012 at 10:53

IHT = 40% of every £ over £325,000

Long term Residential Care = 100% of every £ over £24,250

Which would you choose?

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Hotrod

May 17, 2012 at 11:50

@The Wills Man

We have crossed swords before, I'm interested to read your input, but not convinced by it.

I can only speak as I find and I realise that life here in the North East of England is very different to what it is in the South.

Where I live very few properties are valued above £325,000 You have only to conduct a search using Rightmove to confirm that. Properties of this value usually have land attached.

Yes, I have neighbours who complain about paying for home-help, but the same neighbours have no qualms about having improvements done to their properties which are strickly speaking unnecessary. They hope that by spending the money on the property, they can avoid paying for care.

You may also be interested to know that a local businessman whose company is valued at more than thirty million pounds recently "gave it all away" He realised that if he left it to his children there would be a substantial IHT bill to settle, which his children could not pay without selling the business.

He considered he had a moral duty to his employees who had helped him create his wealth, so he signed the business over to them in the form of a trust, with covenants preventing them from selling the business as a going concern, or moving production overseas.

Yes, I agree my ideas are simplistic, but that's my point. I find I have been successful in life because I have adhered to the "KISS" principle.

All the these complicated theories have got us nowhere, just look at the mess the derivatives market has created.

I have provided for long term care if ever I should need it, by living frugally, but not many people think like me. They would rather go on a world cruise, or have a conservatory built, or get some "professional" to design a tax avoidance scheme for them.

Two things I know for sure to avoid getting put in a care home and getting slapped about, is (1) Follow thought and reasoning with acts. To many slide into dementia by sitting and thinking, but doing nothing about their plight, or worse still, just sitting in front of a television all day. (2) Don't listen to what the clever-dicks say. Always keep your financial affairs under your own control, even if this means selling assets.

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The Wills Man

May 17, 2012 at 12:22

@Hotrod. Whilst the home normally makes up a large proportion of a person's estate it is foolish to think that the value of a house signifies the value of the whole estate. Many of my clients live in houses worth less than £300,000 and yet the combined estate is frequently worth double or even more. Life insurance, death in service, "modest" investments, and chattels can easily match the house value.

I am not adverse to each of us paying for care when we need it. What I do think is iniquitous is the derisory amount a home owner is allowed to keep as an exemption from State help. Paying tax all my life and paying for 25 years to provide a secure home for my family whilst foregoing some of the luxuries I see those who live on benefits enjoy does not endear me to the prospect that what I would like to pass onto my children gets taxed at 100%

Until this social injustice is sorted, (if ever?), I will continue to help my clients protect their hard-earned assets so that they can choose who benefits and not weak politicians.

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easy life

May 17, 2012 at 13:22

Gifting is not necessarily a good idea unless you have loads of money and properties.

First thing to do is to make sure that the property is held in Tenants in common not Joint tenancy. This way half the property is owned by each spouse and cant be sold to pay for care.

Then you need a mirror will so that each spouse gifts the other spouse their half of the property (or estate) to the other when they die. This should be put into trust for the benefit of children-if so desired- such that the remaining spouse has a right to live in the property until they die. Then the kids get everything when both parents are dead. IHT is payable.but not until both parents are dead. Also any life policies/death in service etc should be written in trust then they are outside IHT.

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The Wills Man

May 17, 2012 at 13:34

Note: Severing the tenancy and then gifting your half in your Will to your spouse is a waste of time! If given to the spouse on first death the whole property is theirs and subject to all the problems you tried to avoid! The whole point of severing the tenancy is to leave it in Trust to the children/grandchildren with a right to occupy for the surviving spouse.

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chris gurney

May 17, 2012 at 14:02

Might be worth investigating the implications of "tenants in common" vs."joint tenants" as a method of splitting the value. If my memory serves me correctly "tenants in common" or "tenants in common in unequal splits" ensures that the deceased share of the property passes to their estate as per the will. I am not a tax adviser but do mess about with property and would suggest that with a little juggling this might be appropriate.

Feel free to correct me- My wife is an expert at it!

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The Wills Man

May 17, 2012 at 14:21

For the uninitiated; you cannot gift in a Will - either to a person or a Trust - something that does not belong to you. "Joint" anything - property, Bank accounts, investments etc. belong to each joint holder in entirety and therefore cannot be left in a Will. When the last "joint" owner is the sole survivor then the property is theirs outright and automatically reverts to sole ownership.

"Tenants in Common" indicates that all named parties have a common interest, either in equal or unequal shares, and those shares need to be listed in a separate document unless equal.

Citywire: please ensure contributors give ALL the relevant facts when writing articles - or at least put a caveat in.

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Hotrod

May 17, 2012 at 17:04

I've just done a bit of digging on the internet. In answer to my question:

What percentage of the UK population currently pay inheritance tax?

The most authoritative answer I found was from: www.kgbanswers.co.uk which was posted on February 3rd 2012

They stated that 36,000 estates are currently liable for a total amount of £3.6 billion

No inheritance tax is currently payable on 94% of estates.

Their source of information was: www.taxrearch.org.uk

They did not elaborate further, or explore the avenues open to POTENTIAL taxpayers, as discussed in this article, but it does prove that only 6% of the population actually pay inheritance tax.

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82 yo

May 17, 2012 at 21:21

Is there a way of printing the discussion please ?

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Harry Brooks (Citywire)

May 18, 2012 at 08:42

Hi 82 yo. The easiest way to print the discussion is probably to click and drag your cursor to select all the text you want to print, then paste it into Notepad and print that. That way you won't use up lots of ink printing the shaded boxes. Hope that helps.

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82 yo

May 18, 2012 at 15:16

HB - many thanks - jwb

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Anonymous 3 needed this 'off the record'

May 19, 2012 at 12:49

MY pension is low, my chidren are helping me by transferring into my account sums of money with view that they revovcer this as a debts on my estate. I included this arrangment into my Will.

The Wills Man: could you advise whether this arrangement would be enough for them to revcover the advanced sums (no interest) from estate and therefore lower IHT, as I am reluctant for reasons you have explained, (their earlier death, divorce) to create registered charge on my house for their benefit.

Thanks.

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Derrick G

May 19, 2012 at 17:23

I thought we were advised about 18 months ago that £325k was exempt for both husband and wife, allowing a total of £650k. From the above discussion I take it that the advice was just electioneering.

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Madan Badale

May 19, 2012 at 20:56

MB

If you have made a will and distributed your assets among the family in a tenancy trust and the will is more than 7yrs old, does the 7 year survival rule

applies? Will the distributed asset will be tax free?

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The Wills Man

May 19, 2012 at 23:08

@Anonymous3. The transactions need to recorded as a loan repayable on death if not repaid earlier. These then become legitimate debts on your estate and would reduce any IHT liability.

An annual account or statement of intent is acceptable if these are regular transactions via a bank account or similar.

This would be more advisable than placing a charge on your property as the debt is only payable after your death - hence any divorce etc. would have no effect whilst you are alive.

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Dennis .

May 19, 2012 at 23:33

I spoke with a lady today whose husband is suffering from dementia, his "care" is costing her £3K/month, they had downsized their house to release some capital and she is concerned that most of their savings will quickly be used up and then a charge will be made against the house for when she dies. With problems like that IHT pales into insignificance.

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DEBBIE SMITH

Jun 10, 2012 at 10:04

My mother in law went into a care home and they considered money she gave to family 10 years ago as deliberately gifted even though this was money she had inherited and wanted to give away. Although no pre planning was involved, my brother in law took out a joint mortgage with her to raise money for him to buy a home and for her to do improvements. My husband paid her share until the house was sold and was able to claim this money back as owed to him. So the house owner borrowing money for improvements and a relative paying back is the only way I see of reducing the bill.

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Dennis .

Jun 11, 2012 at 10:11

Debbie, I thought there was a 7 year limit on this sort of thing. I know we aren't talking IHT but how far back can they go for care assessment? I assume it was carried out by Social Services.

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The Wills Man

Jun 11, 2012 at 11:41

Debbie and Dennis.

The local authority have to show that there was reasonable expectation of a future need for Long Term Care. If there was, for instance, a degenerating disease or condition and the gift was "out of character", then theoretically there is no time limit; but, if at the time of the gift there was no pre-existing condition or reasonable expectation of Care then the general rule is 6 months prior to the need arising. There have been cases where a "gift" was made even a few weeks prior to a sudden, unexpected need where the Local Authority have failed to make a valid claim.

Debbie. If the need was not reasonably predictable at the time of the gift you or your family can appeal against the decision with a good prospect of success. There have been many cases where money/assets have been reclaimed. Look for a solicitor who has experience and a good level of success in these claims - don't just go to the "local-does-a-bit-of-everything" firm.

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DEBBIE SMITH

Jun 11, 2012 at 16:40

This is very interesting. It was about 8 years ago when she gave away the money and she was as fit as a fiddle. I will look around for a solicitor and see what I can find out. The solicitors where I am are a bit sketchy to be honest so I will need to look further afield.

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Nick1 via mobile

Jan 14, 2013 at 21:04

My mother holds title to a home she has had for 11 years and never lived in valued at about 700k with a mortgage of 310k outstanding.Can she give me a small percentage of this property every year to use her cgt allowance up. In the time she has had it so far I estimate she has made around a 40% gain as it was worth around 400k when she first got it.So am I right in thinking she could give away around 25k worth of property pa which would be about a 10 k gain pa so would be exempt from cgt.

Thank you

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Nick1 via mobile

Jan 14, 2013 at 21:19

Also can someone give away an amount in their property rather than a percentage ie could my mother gift me 25k pa rather than 3% pa so that the equity is eaten away, thus reducing the iht liability as well.

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chris gurney

Jan 15, 2013 at 11:17

Where the property is her "Principle private residence" for tax purposes there will be no CGT charged, if she were to pass away then you might be liable to inheritance tax. You probably ought to take specific advice on this as you should probably charge her rent for the proportion transferred which would be taxed at your highest rate.

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Hotrod

Jan 15, 2013 at 13:54

@Nick1

Let's be clear, (If the details you have submitted are correct) Your Mother does not hold title to the property in question. She is merely the nominated beneficial mortgagee.

The title holder would be deemed to be the mortgagor. (Bank, Building Society, or Institution which granted the mortgage)

Your mother is not free to do anything with the property (including offering it for sale) unless specific consent has been granted by the mortgagor.

I doubt very much that any established mortgage company would entertain a convoluted arrangement such as the ones you have proposed.

As regards the calculation of financial gain for IHT and CGT purposes I would have thought that the methodology used by HMRC would follow standard accountancy principles, given that the house has never been used or designated as a primary residence.

In which case the net gain would be calculated on the following basis:

Initial capital cost = Deposit paid.

Ongoing financial cost = cost of servicing the mortgage (Interest charges)

Cost of improvements, major repairs, care and maintenance.

Insurance costs.

Less incomes received from renting it out.

It maybe that some of this cashflow is already accounted for in your mother's annual income statements, but in view of the substantial mortgage still outstanding I doubt that the IHT and CGT liabilities have accrued to a level where it would be neccesary to contemplate changing your mother's present arrangements.

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Nick1 via mobile

Jan 16, 2013 at 20:58

Thank you for your answers I thought the capital gain would be the value minus initial cost and improvements only, and the interest payments and maintenance would go against income if we were to rent it out.Also I am sure she could sell it as the mortgage would get paid off on the sale. I think if it were to be sold today for say 700k less approx 400k cost and around 50k on improvements so a gain of 250 k,would that be 70k tax less the 10k allowance so 60k tax to pay. Am I getting it kind of right or missing something.

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sandy in surrey 11

Jan 24, 2013 at 00:00

What happens for IHT purposes if a man (sole ownership) givess joint ownership of his PPR to himself and his children via a joint tenancy agreement?

I know there will be be capital gains tax impacts but not sure if there is any impact on potential IHT and if there is how would the valutaion be made?

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sandy in surrey 11

Jan 24, 2013 at 20:42

Is it possible for a father (the only owner) to make himself and his children joint tenants of his principal private residence. If he were to die how would the fatherr's share be valued for IHT purposes. I understand that If he gifted to his children there may be capital gains tax impacts at that time

With joint tenancy would the father's share be part of his estate valuation based on its worth when the joints tenants agreement was drawn up? Then after 7 years there would be no IHT to consider?

Would an alternative tenancy in common ownership agreement be an option with a gift with reservation.

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Joe via mobile

Jan 29, 2013 at 09:15

My mother is 83 years old and wants to sell her property (valued at around £150,000) to give me the cash now. She also wants to avoid paying for care costs if this becomes necessary... I understand that she will have to live another 7 years before the £150,000 becomes exempt from Inheritance Tax. My question is, could I open a joint bank account with my mother and use that to deposit the money from the sale of the house? As joint accounts assume ownership of ALL the money to BOTH account holders, would this be a legitimate way of avoiding the tax? Thanks.

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The Wills Man

Jan 29, 2013 at 09:32

Joe

Sadly, you are mistaken about the effect of joint accounts.

Whilst the LEGAL ownership of the account passes to the surviving joint owner(s), HMRC require the VALUE of a deceased person's share to be declared for tax purposes - in the same way as joint property ownership.

Thus you have the worst of both worlds - if your mother goes into care the WHOLE account is deemed as hers (by law), and therefore would be lost in paying fees.

If she gave you the money now, and there is no foreseeable need for care at the time then the whole amount would be safe as far as care fees are concerned and the 7 year P.E.T. would begin for relief from IHT (or pay 20% now for full relief on the remainder)

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Joe via mobile

Jan 29, 2013 at 09:52

Thank you for your clear response. Assuming that my mother doesn't require care within the first 6 months, what if the money was transferred from the joint account into a sole account in my name immediately afterwards? I'm assuming this is perfectly legitimate, as the money would also be considered mine to do what i like with?

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jay48

Jan 29, 2013 at 14:13

I live with my partner and I have recently been organising my Will through a solicitor. I want to leave my house and property entirely to my partner but he has pointed out that she will be liable to Iht on everything (the house is above the threshhold) Apart from marriage is there anyway for us to avoid this? Would the 7 year gift be advisable? Or could I put her name on the deeds of the house?

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The Wills Man

Jan 29, 2013 at 15:13

Yes it would; however there is still the 7 year P.E.T. rule to follow. I am not sure why you would want to wait 6 months? If the money going into the account belongs to your mother then it would still be regarded as a gift whether immediately, or after 6 months or after 6 years - why wait if it is to be a gift?

Also, if your mother is concerned about IHT then presumably she has other property or assets that exceed the £325k NRB - these are still vulnerable to consideration for paying for her care if she needed it.

Perhaps you should consider getting specific advice for your, or your mother's circumstances and receive a holistic approach rather than piecemeal (as these forums generally are)

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Rusty

Feb 08, 2013 at 12:23

My mother has recently died, my father is seriously ill in hospital, I am the only child. My parents made a basic will whereby I am the sole benefactor.

Although there is little in the way of savings, my father lived in a small bungalow in a decent area. It has been valued at £500k.

When my father dies I would inherit the bungalow. I would like my family to live there but it is too small in it's current state although it sits on a large plot. I am wondering what are the tax implications if I knock the bungalow down and build a 5 bedroom house on it. Also what would happen if i wished to sell that property at some stage in the future? Am I liable to pay further tax on the increased value of the property? Many thanks in advance.

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Hotrod

Feb 08, 2013 at 14:08

@Rusty

I think you are getting too far ahead of yourself. Cross your bridges when you come to them.

Firstly: There may be announcements in next month's budget which will affect your circumstances.

Secondly: As you should already know (your mother having died recently) a valuation of your father's estate must be made before probate is granted. Valuations for probate are generally lower than estate agents open market asking prices for properties.

Thirdly: These procedures take time and cannot be rushed. However when IHT is finally calculated, if the recipient is unable to pay in cash, he or she can apply for a deferment.

Finally: If I was in your position I would simply wait and see how things pan out, rather than try to pre-empt the outcome.

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Rusty

Feb 08, 2013 at 14:23

Thanks for your speedy response Hotrod..., I fear my father will not be around come next month's budget. However, you make an interesting point re deferment which I hadn't considered. Cheers.

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The Wills Man

Feb 08, 2013 at 16:58

@Rusty

Inheritance Tax is based on the value of the estate at the date of death. As Hotrod has mentioned, estate values are generally lower than market value (often referred to as "aggrieved value"). If your mother left everything to your father then the estate should qualify for "Transferable Allowance" taking the threshold to £650k

What you do to the property after the death of your father has no bearing on IHT but may have Capital Gains Tax (CGT) implications.

As a piece of advice: do not instruct a solicitor to deal with probate unless they are prepared to do it by fixed fee alone (Probate is not difficult and you can do it yourself with just a calculator and the free help from the Probate Court)

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jill walker via mobile

Feb 09, 2013 at 11:42

My son is going through a divorce, and wants to buy his wife out with money we are lending him, he will be paying us back each month. If anything should happen to my son, how can we protect our cash outlay?

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A Sick SIPP Owner

Feb 09, 2013 at 12:22

First thoughts -

Whatever he has will be up for transfer to the wife and family

Second thoughts

Whatever he may get in future will be up for transfer to the wife and family

Third thoughts

Maybe you could get an endowment/on-death insurance - but up-front payment by him - means the court (and CSA - whatever) could consider the value is his asset, and making you the beneficiary is trying to avoid having assets transferred to the wife & family.

Ongoing payments - well that would be from income - that should surely be used to support the wife and family.

So - I'd suggest that any action should either wait until the court finalises the settlement, or be embodied in that settlement, and then hope that the government (CSA etc) doesn't ignore the court's decisions.

Then again, I'm lucky not to have been through that particular pain, and maybe someone who has will post a more helpful reply, but whatever, you really need to get some (long-term PII covered) legal advice.

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The Wills Man

Feb 09, 2013 at 14:36

@jill walker

Keep it simple.

Whatever you lend your son must be as a written loan agreement for which he is liable to pay interest at a small amount above BoE base rate.

Then re-write your Will to include a clause that relates to that loan and confirms it as a gift providing you predecease him. (written in Trust so it is not included in any divorce settlement)

A good and well qualified Estate Planning Consultant will know exactly what to do to ensure that whichever of you dies first will have the debt and this can avoid any IHT issues with the sum and the interest.

No need for life insurance and as your son will have a debt neither the divorce court nor CSA etc can ignore the liability.

If you need more specific advice then you may email me.

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Jolanta Nowak

Feb 09, 2013 at 15:13

The Wills Man,

If the estate value (property) is lower than market value (aggravated value) which one will be taken into consideration for CGT if

a. property is sold immediately after IHT is paid

b.sold later

also

Is there any way money spent by my father on rebuilding the house can be treated as a loss for CGT if the inherited by me house (IHT paid) is sold be me?

Wills man you are priceless.Thanks.

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The Wills Man

Feb 09, 2013 at 15:40

@ Jolanta Nowak

The Tax Man is not fooled! If a low value is accepted for Probate (IHT) then it is that value which is compared to the sale value whenever the sale takes place. If there is no change to affect the value of the property and it is sold within a short period after probate then HMRC may insist on a revaluation for IHT.

Otherwise the standard CGT rules will apply. These also apply if your father pays for the work, but this needs to be done with great care and considered accounting.

There is a third option that I advise my private clients to use. For commercial reasons I cannot detail it here!

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LONDON EYE

Feb 11, 2013 at 15:03

IHT - if my husband and I add our two children to the Land Registry register as tenants-in-common of our home does that mean we each own 25% each?

The home is freehold with no mortgage - we all live in it and will continue living in it.

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ToThePass

Apr 10, 2013 at 12:37

Mother is 86, still sprightly, owns bungalow outright, valued at 100k. Dad passed away 2009. Mum is coming to live with us for the rest of her days. My husband and I are both qualified carers. Mum wants to gift us her bungalow to help with her keep. I realise it is not subject to IHT, but does the 7 year rule still apply if the value of the house is below IHT duty? Many thanks for any help.

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pen2908 via mobile

Apr 21, 2013 at 21:34

my widowed mother is terminally ill and we are concerned that her estate will be over the IHT threshold, with regards to her property would we be able to negate this if myself and her 2grandchildren (both adults) bought her house from her for a nominal figure eg £1000 each? meaning we each owned a third share, i had wanted to ask how.this would work if she was to still remain in the property and paid a peppercorn rent to us however at the time of writing she is living with me and unable to return to her property due to her ill health. what would her options be in this instance please?

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Dennis .

Apr 21, 2013 at 23:53

pen 2908 If it was as easy as this we wouldn't be having this forum discussion.

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Hotrod

Apr 22, 2013 at 09:44

Pen2908

It should be obvious to you that at this late stage in your mother' life, her options have run out.

Any tampering with the ownership of her estate, from now on, will be viewed with suspicion by HMRC. They have enough on their plate already with serious fraudsters without you adding to their workload.

I'm sorry to be unsympathetic, but the fact of the matter is; that only 10% of the population qualify for IHT. Therefore your mother's beneficiaries will each receive a substantial legacy relative to others who have to face a similar situation, regardless of the fact that a proportion of her wealth will be sequestrated by the Govt.

The law regarding IHT has been put in place for sound reasons. If their was no law regarding the inheritance of wealth, it would not be long before you had an elite oligarchy representing only 5% of the population, who owned everything, and 95% plebs, who owned nothing.

Even today there are many people who die without any tangible assets, leaving their relatives to foot the bill for funeral expenses. If I was you, I would thank my lucky stars that your mother was more thrifty than some, and I should be prepared to pay up without whinging about it.

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Stephen Robins

Apr 29, 2013 at 20:02

Following a court case my ex business partner declared bankruptcy and a trustee was appointed. One of the assets in my ex business partner's estate was his father's house which had been gifted to him. The trustee quite rightly claimed the house as part of the bankruptcy as my ex business partner owned it at the time he declared bankruptcy. There was a declaration of trust produced at the time the house was gifted stopping the sale of the house until the father's death or him having to be moved into a care home and the trustee noted it's validity and agreed that the father could remain in the house until such time that it could be sold. The father is suffering with dementia.

Subsequently during the bankruptcy period when arguing about the house with the trustee my ex business partner produced another trust deed stating that his children were to be the beneficiaries of the house. This trust was allegedly made at the time the house was transferred (after the 7 year period). The trustee in bankruptcy is investigating further.

I would be interested in your comments as to whether the house should form part of the bankrupt estate or not and whether a declaration of trust is a legally binding document in this case..

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Giselle

Jun 06, 2013 at 14:17

My ex husband and I are joint owners of my home which will be mortgage free soon. Can my ex make our 15 year old son beneficial owner of his share until he is 18 when he will become legal owner ? If my ex survives 7years will my sons share be free of IHT. My ex does not live in the home. So confused, pleased help!

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stephen mchugh

Sep 04, 2013 at 12:33

I built a house in 1992 in a tenants in common arrangement with my brother and mother.We split the funding three ways. I ended up however had to loan my mother £33,000 on a promisory note for her funding.My Brother died 11 years ago and left his share of the house to me.At the same time my mother gifted her share back to me.I cancelled the promisory note 2002.She was in good health.I am now sole owner from1992.I am now building an annexe for her to live in as she lives a distance.Should she need care in the future would the council have call on her original share up to 2002

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Wolfgang

Sep 23, 2013 at 21:28

My brother and I jointly have my father's house deeds that were transferred by trust over 14 years ago..my father at the time was ill advised by a solicitor that this was a good action to do. The house is only worth about £125K, and total assets are well below the threshold so inheritance tax would not have been a problem. I believe however that in future when he passes on and we come to sell the house we will be liable to capital gains at 40% on the profit the house has made over those years. Is there any solution to this.

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