buying part of parents house

[ruthann58]

my friend and her husband would like to free up some cash their 2 daughters have said they will each take on a morgage and buy a share of the house (one daughter still lives at home) but they have been told that if the girls do this they will have to pay tax as this will be classed as a gift from their parents even though their names will be on the deeds is this correct

[Buenchico]

There is no tax on gifts, per se.

However, if the parents were to give their daughters a substantial gift (such as the house), and both parents were to die within 7 years, the gift would be taken into account when assessing the value of the parents' estate for inheritance tax purposes.

If the daughters purchase the house, from their parents, for the full market price, no gift has been given and there could therefore be no liability for inheritance tax in respect of the value of the house.

However, if the parents sold a �300,000 house, to their daughters, for �100,000, the tax man would regard this in the same way as if the daughters had paid the full market price and the parents had given �200,000 back. i.e. if both parents were to die within 7 years, a gift of �200,000 would be taken into account for inheritance tax purposes.

Even so, as long as the family don't fall out (because the daughters, as owners of the house, could seek to evict their parents), the proposal could make sound financial sense. If the second parent to die still owned the house at the time of his/her death, the full value of the house would count when calculating inheritance tax. However, if the house had been transferred (even with an element of 'gift' involved) to the daughters more than 7 years earlier, there would be no IHT to pay in respect of the value of the house.

Chris

[Loosehead]

They will have to take part ownership as part of the process as no lender would lend without that. Forget deeds they are irrelevant, it's the records at the land registry that arei mportant. By giving over the money and having there names on the registry as part owners thay will effectively be buying part of the house. This may well be liable for Stamp duty if the proportion they buy is over 120K. There is no such thing as gift tax as Chris says and as it's effectivley a purchase IHT should not be an issue on the part that's purchased.