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House Deeds Transfer
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My partners father wants to sign his house over to him rather that leave it to him in his wil (to try and avoid the dreaded inheritance tax!). What would be the easiest and most cost effective way of going about it?
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This is becoming a fairly common route for property disposal these days, and is a complicated issue embracing more than the avoidance of inheritance tax, worthy of seeking advice from a chartered accountant or other financially astute professional.
If your partner's father is signing over their house as a GIFT then it is likely it will be exempt from Inheritance Tax, but this would be dependent on your partner's father living for at least 7 years after the 'signing-over'. As a gift it is also possible there will be no Capital Gains Tax implications but this is a point well worth checking on. If the property is still to be lived in by your partner's father they may have to pay market rent to your partner to demonstrate that the transfer took place 'in consideration of care or accommodation' (think of it as a private nursing home). You'll also want to consider things like Stamp Duty, which would probably be payable by your partner at transfer if his father continued to live there, and the rules on Charging for Residential Care Guidelines (again, if your partner's father continues living under his roof) may throw up some hurdles of their own. Seek professional advice would be my (unprofessional) advice.
If your partner's father is signing over their house as a GIFT then it is likely it will be exempt from Inheritance Tax, but this would be dependent on your partner's father living for at least 7 years after the 'signing-over'. As a gift it is also possible there will be no Capital Gains Tax implications but this is a point well worth checking on. If the property is still to be lived in by your partner's father they may have to pay market rent to your partner to demonstrate that the transfer took place 'in consideration of care or accommodation' (think of it as a private nursing home). You'll also want to consider things like Stamp Duty, which would probably be payable by your partner at transfer if his father continued to live there, and the rules on Charging for Residential Care Guidelines (again, if your partner's father continues living under his roof) may throw up some hurdles of their own. Seek professional advice would be my (unprofessional) advice.
he needs to make a gift of the house to his son and then his son needs to hold it on trust for his benefit until he dies. it's a nice theory but there are a wealth of cases demonstarting the many and varied ways the inland revenue ensure you do pay that tax and if the father dies within the next seven years then you're going to have to pay the tax regardless. the courts can also make the gift invalid if they question the intention behind the gift and your plan to give away before incurring liability for tax is a bit transparent, if that happens then possession will revert back to the father's estate and tax will have to be paid. making a gift of land is not as straightforward as giving a chattel, i do recommend you take legal advice and don't get your hopes up because of the sheer amount of law designed to stop you doing this. sorry to be bearer of bad news on this, it's a few years since i've worked in this area so i'm curious to know of any developments others know of.
Gifting your home where the transferor intends to still occupy the property simply doesn't work for IHT purposes I'm afraid; the tax man wised up to this a long time ago. This would be a 'gift with reservation', i.e. the transferor is reserving some benefit by still living in the property. If, ont her other habnd, your partner's afther does not intend to live in the property after gifting it, it may work but you legal advice must be sought to put a watertight agreement in place. A relatively straightforward way to provide for IHT liability is for your father's partner to take out a separete life insurance policy which is calculated to provide a sum that will cover the anticipated IHT liability. This insurance policy must be held in trust though, otherwise if will form part of the father's estate. Again, seek legal advice if this could be an option.
Thanks for all your answers. His father is intending to move out of the property and we will be living there. What basically needs to be done? as far as i can work out (although i could be wrong as i've never bought a property before) all that would need to be done would be a signing over of contract by a solicitor. Is this correct? with regard to IHT the value of the house isn't at the threshld yet but the house needs a lot of work doing to it and after than and a few more years of pricing increase it might well be by then. If we were to buy the house off him for a nominal fee and then charge him a small amount of rent if he does continue to live there, would this be enough to avoid it if needed?
If your partner's father does not live in the property once he has transferred it to your partner and is a straightforward gift with 'no strings attached' (e.g. there is no condition that your partner will financially support his father by, for instance, paying for his rent/mortgage on a new property) then, on the face of it at least, the transfer could successfully mitigate IHT liability. The gift will be treated as a Potentially Exempt Transfer (PET), which means that if the father dies within seven years from the date of the gift, IHT will be payable, though on a sliding scale basis. I can't recall the precise scale off the top of my head, but for instance, if the father died within 5 years of making the gift, then 40% of the full IHT liability would be payable. If you want to buy the property for a 'nominal sum', as the transaction won't be 'at arms length', this has risks. If the father is going to live in the property with your partner and you, whether the 'GROB' rules bite ('gifts with reservation of benefit'), depends on the circumstances. There are new rules on IHT planning, which cover the gifting of one's main residence among other things, which come into effect April 2005 and are aimed at cracking down on the various IHT mitigation loopholes and will be retrospective in many cases covering agreements going back to 1986. The best advice anyone on this site can give you is that you must seek professional legal and tax planning advice. It is far better to spend �2,000 or so now getting proper advice and having the proper agreements drawn up than finding yourselves landed with a IHT bill for tens of thousands of pounds in the future.
thinking of a way round this - what's to stop the parent selling the house, moving into rented accom., and gifting the house proceeds to the child over a period of time? (less of course enough to pay the rent for the forseeable, of course...)
whilst i am an honest citizen oh yes, and pay my taxes with a cheery face, i think taxing the dead is abhorrent
whilst i am an honest citizen oh yes, and pay my taxes with a cheery face, i think taxing the dead is abhorrent
There's nothing to stop that happening if it's done properly but each payment of money to the children, where it is drip fed, will be a PET. But this is an added expense for the parents by having to pay rent; why should they when they've worked hard to pay off a mortgage?! I wouldn't want my parents leaving their home which they've worked hard for over many years for the insecurity of rented accommodation just so I can be a bit better off in the (God willing) very long distant future.
i am just hypothesizing ways to cheat the taxman of his death tax. Actually (and this may require your advice also please) my father and mother are hoping that i or my sister will be one of those people who buy a 2nd home in France, which they can live in and look after and we come and join them for the holidays, that sort of thing. (wonderful idea IMHO - better than having their final years in "sunny" yorkshire) If they sell up in this way they could drip feed their savings to us if they want and live happily ever after rent-free in sunny France no? ps. have i not hit on another way to avoid inheritance tax? (or do the french have death tax also?)
another couple of interesting answers although they will not work in this case. He will definitely NOT be living with us. Tried that once before and it didn't work. He won't sell the house either as it has only been owned by his family so he's quite sentimental about that. We however are not! plus the house would be worth a lot more with some redecoration and renovation which would be stupid for us not to do the work before it's sold. We'll probably go and see a solicitor about it and see what they say.
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