Parents home ownership transfer – Are we now Landlords?

I hope you and your parents have taken legal advice, this area is a minefield to say the least.

Also, if your parents were to need to pay care home fees without having the ability to pay for it then the transaction could be nullified!

https://www.saga.co.uk/magazine/money/personal-finance/giving/what-you-need-to-know-about-signing-property-over-to-your-children

This is a great article that I would always refer to in the first instance as it captures many of the major pitfalls in this approach!

That was very nice of them to give you their house!

As I am sure you are aware, it will not avoid IHT unless they pay you market rent, so I wonder why they did it.

And as a housing provider, you will probably have to make sure the house complies with all the regulations that landlords comply with. I’m not 100% on this, but it seems very likely.

As I am an IFA who specialises in Inheritance tax ( IHT) advice this comment should not be viewed as FCA individual regulated advice but generic advice for information only.

As previously suggested this move is a potential problem. Why was this done? In my experience its usually avoidance of IHT or care home fees planning?

Care home fees
Unless your parent are extremely wealthy, the local authority is likely to class this “gift” as deprivation of assets and so take the value into account when assessing them for any care home fees so the planning is unlikely to work.

IHT planning.
The house value will still potentially fall into your parents estate unless they pay you and your brother a full market rent as the gift will probably be regarded by HMRC as a ” gift with reservation of benefit”. If their estate excluding the property is not ever likely to be more than £650,000 then there was no point anyway.

In addition not only will it still be liable to potential IHT but will also be liable to Capital gains tax on you and your brother when the property is eventually sold. In many cases where this has been done both the IHT and the CGT have to be paid. The pitfalls of not taking proper advice.

It is possible to avoid both the care home fees and the IHT with correct planning but face to face advice from an experienced adviser is highly advisable.

Reply to the comment left by “Charles de Lastic” at “07/02/2017 – 11:45“:

I agree with Charles in that this has to be done very carefully with the correct advice. We have done it successfully with my in-laws, but I know it was very complex and we will have a CGT bill in the end on the difference between when it was gifted to us and the value when they die. The 7 year rule came into play as well.

However, they were allowed to live rent free without it being seen as a benefit in kind to them.

I repeat though that professional advice is needed as we used our solicitors, accountants and more importantly sought and obtained Revenue approval BEFORE any transactions took place.

As always, I would say ask the professionals first.

Reply to the comment left by “Ken Johns” at “07/02/2017 – 11:59“:

Hi Ken
I find it interesting that:
“However, they were allowed to live rent free without it being seen as a benefit in kind to them”
Why in your understanding was this the case?

Are you certain?- In my understanding it is not normally assessed by HMRC until the last spouse to die actually occurs

What about placing the house in a discretionary trust removing it completely from your parents estate, and you both as the beneficiary’s…of course you would need a financial adviser who knows about trust law…

Reply to the comment left by “Charles de Lastic” at “07/02/2017 – 13:27“:

It is now 7 years ago, so I would have to dig the paperwork out the archives, but it was perhaps more complex in that we all now live in the same property, albeit in two separate units (that needed planning permission by the way) and my mother in law is registered disabled.

Hi Ken
Yes I suspect the fact that you all live in the same property has a major impact on the HMRC decision

Reply to the comment left by “Paul Green” at “07/02/2017 – 14:00“:

Hi Paul

Not a runner in my opinion.

The discretionary trust route would still have a similar double taxation impact as passing it to the two brothers. In fact worse as the CGT impact would be much greater on the trust than the individuals as the individuals get a much larger CGT allowance than the trust and could also gift part of the property to spouses and so utilise their CGT allowance too.

The only advantage the trust route has is in the event one of the two brothers or their children (if the property remained in the trust) got divorced and the brothers wives were not classed as beneficiaries of the trust.

in addition if there was a payment made from the settlors (the parents in this case) the trust rates of tax are also much higher not to mention paying an accountant to submit tax returns for the trust.