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Inheritance Tax
if a daughter has lived in a house technically owned by the father for around 18 years, and the dad decides to transfer the property, legally, to the daughter - would it be subject to inheritance tax if he dies within 7 years?
does the fact that it has been the home of the daughter for almost 2 decades show somewhat that the home had in fact been 'given' to the daughter many years earlier - just not on paper.
Could this prove that he is not disposing of assets simply to avoid paying IT?
the father does not live in the house.
My dad is worried now that although he gave me the house many years ago, he thinks by not transferring it into my name i am going to lumbered with a massive IT bill - he is 86 so its possible he will not live another 7 years.
the mad thing is i am sure he has been worrying about this for more than 7 years by now!
are these cases judged purely on paperwork rather than circumstances?
Thanks
does the fact that it has been the home of the daughter for almost 2 decades show somewhat that the home had in fact been 'given' to the daughter many years earlier - just not on paper.
Could this prove that he is not disposing of assets simply to avoid paying IT?
the father does not live in the house.
My dad is worried now that although he gave me the house many years ago, he thinks by not transferring it into my name i am going to lumbered with a massive IT bill - he is 86 so its possible he will not live another 7 years.
the mad thing is i am sure he has been worrying about this for more than 7 years by now!
are these cases judged purely on paperwork rather than circumstances?
Thanks
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Having just dealt with a Will as Executor I had a not entirely unrelated issue and I rang the Probate Help line 0845 30 20 900 and after much "going away to talk to their superior" they eventually came up with an answer.
From my experience of reading all the documentation I think you may be liable for Inheritance Tax although if you've been living rent free your interpretation of "gift" may hold water.
Hopefully one of AB 's legal eagles may be able to help.
Good luck.
From my experience of reading all the documentation I think you may be liable for Inheritance Tax although if you've been living rent free your interpretation of "gift" may hold water.
Hopefully one of AB 's legal eagles may be able to help.
Good luck.
joko, from your previous posts i think you will have a problem. How can you show the house is "yours" when over the time you have had it, you've claimed housing benefit as a tenant of it (i think it was you anyway who posted about parents being able to rent to their children who get hb) - i think in this case, it doesn't matter what the paperwork is, it'll be the "circumstances" that work against you
No definitely your fathers
I dont think the tax authorities will accept that it is your own.
that is I dont think you would be able to establish in any way it is legally your fathers and equitably your own [ or else everyone would do it - dont worry about IHT - all you have to do is live in one of your parents houses for seven years....]
so it would be seven years from the date of transfer whenever it will be.
[ Think of it - if he put it on the market and sold it, would the solicitor says to you o the cheque is in your name joko it is obviously yours ?
I dont think so. ]
The 'great thing' is reservation of benefit
has your father retained benefit by beaming at you for twenty y and saying it is yours really joko when I go......and not transferring title ?
Yes he has retained the benefit of being able to sell it without your say so.
The rules changed around 20y ago - 1988 I think - and everyone was aware of the effect. A general feeling then amongst parents was that if they gave the house to their kids, they could and would put the parents out on the street. If they retained the house, there would be tax bill, actually there would be a tax bill for when they werent there which was usually quite acceptable to the parents.
NB PP is not a tax consultant
short answer is - - agree Canary 42
I dont think the tax authorities will accept that it is your own.
that is I dont think you would be able to establish in any way it is legally your fathers and equitably your own [ or else everyone would do it - dont worry about IHT - all you have to do is live in one of your parents houses for seven years....]
so it would be seven years from the date of transfer whenever it will be.
[ Think of it - if he put it on the market and sold it, would the solicitor says to you o the cheque is in your name joko it is obviously yours ?
I dont think so. ]
The 'great thing' is reservation of benefit
has your father retained benefit by beaming at you for twenty y and saying it is yours really joko when I go......and not transferring title ?
Yes he has retained the benefit of being able to sell it without your say so.
The rules changed around 20y ago - 1988 I think - and everyone was aware of the effect. A general feeling then amongst parents was that if they gave the house to their kids, they could and would put the parents out on the street. If they retained the house, there would be tax bill, actually there would be a tax bill for when they werent there which was usually quite acceptable to the parents.
NB PP is not a tax consultant
short answer is - - agree Canary 42
The '7 year clock' only starts running when an 'outright' gift is made. Full liability for IHT remains unchanged when a 'gift with reservation' is made.
So even if you could prove that your father gifted the house to you many years ago (which I doubt), since he still retained the legal right to sell the property for his own benefit (even if he had absolutely no intention of doing so) it would have been a 'gift with reservation' and it wouldn't matter if he died more than 50 years later, full IHT would still be due.
Similarly if your father now gifts you the house formally (by changing the title register) but retains any type of interest in the property (e.g. by living with you without paying a full commercial rent) it's still a 'gift with reservation' and the '7 year clock' doesn't start running.
It's worth remembering though that IHT is only payable on the value of a property above £325,000 (at the current threshold). Further, the 7-year rule doesn't represent a dramatic cut off point. It's a sliding scale, so you'd pay less if your father died (say) 6 years after making an outright gift than if he did so only one year on.
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So even if you could prove that your father gifted the house to you many years ago (which I doubt), since he still retained the legal right to sell the property for his own benefit (even if he had absolutely no intention of doing so) it would have been a 'gift with reservation' and it wouldn't matter if he died more than 50 years later, full IHT would still be due.
Similarly if your father now gifts you the house formally (by changing the title register) but retains any type of interest in the property (e.g. by living with you without paying a full commercial rent) it's still a 'gift with reservation' and the '7 year clock' doesn't start running.
It's worth remembering though that IHT is only payable on the value of a property above £325,000 (at the current threshold). Further, the 7-year rule doesn't represent a dramatic cut off point. It's a sliding scale, so you'd pay less if your father died (say) 6 years after making an outright gift than if he did so only one year on.
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As has been said, if the house is worth less than £325,000 (and the father does not have a huge amount of extra money) then IT does not apply.
Also as has been said, if the mother has already died and she did not use her IT allowances then if the house is worth less than £650,000 then IT does not apply.
Only if the full estate is above £325,000 (or £650,000) do you have to pay IT.
Also note the 40% IT ONLY applies to anything ABOVE the £325,000 (£650,000). You only pay the 40% tax on anything over those figures.
However if it is felt the father was "disposing of assets" just so they can claim benefits, or to avoid care home fees, there may be some tax to pay by the daughter.
Also as has been said, if the mother has already died and she did not use her IT allowances then if the house is worth less than £650,000 then IT does not apply.
Only if the full estate is above £325,000 (or £650,000) do you have to pay IT.
Also note the 40% IT ONLY applies to anything ABOVE the £325,000 (£650,000). You only pay the 40% tax on anything over those figures.
However if it is felt the father was "disposing of assets" just so they can claim benefits, or to avoid care home fees, there may be some tax to pay by the daughter.
thanks everyone, it was just a thought.
my dad has always been a worrier and hes worrying too much about all this really, he's not very good at all this kind of stuff and he's worried my mum or bro will try to take the house from me
he just wants to know that i have a safe home when he's gone
yes i have had housing benefit in the past - i felt i should give them something - its only what they'd get if they had tenants - i mean they gave me a house and got nothing for it! -
but he would not take money off me personally for rent - in fact i have to stop him giving me money sometimes, hes always trying to give me cash.
its not worth £325,000 especially in its current condition that's for sure - nowhere near - does that mean if he transferred it now, the IT would not be an issue anyway?
I'm in merseyside.
he is worried that it will technically go to my mum - (although as his wife it may actually technically be already half hers anyway) and he thinks she may try to sell it - and let my brother convince her - hes something of a sociopath, but she seems totally assured he wouldn't do anything untoward, but i'm not so sure as he has already tried to get me to leave. he even tried to get his own room in the house just so he had access and an interest in it.
could dad put it in a will that it goes to my mum thereby avoiding the IT - but only under the proviso that she cannot sell it and it is passed to me on her death?
or has he no right over what happens to it in the future?
i just want to sort this for his peace of mind - hes old and hate to think of him worrying about this and blaming himself - but also for me so i am secure for the future
my dad bought properties - houses and shops - when we were kids in the 1970s, for exactly this reason - so he could be sure we all had some security when they were gone
my dad has always been a worrier and hes worrying too much about all this really, he's not very good at all this kind of stuff and he's worried my mum or bro will try to take the house from me
he just wants to know that i have a safe home when he's gone
yes i have had housing benefit in the past - i felt i should give them something - its only what they'd get if they had tenants - i mean they gave me a house and got nothing for it! -
but he would not take money off me personally for rent - in fact i have to stop him giving me money sometimes, hes always trying to give me cash.
its not worth £325,000 especially in its current condition that's for sure - nowhere near - does that mean if he transferred it now, the IT would not be an issue anyway?
I'm in merseyside.
he is worried that it will technically go to my mum - (although as his wife it may actually technically be already half hers anyway) and he thinks she may try to sell it - and let my brother convince her - hes something of a sociopath, but she seems totally assured he wouldn't do anything untoward, but i'm not so sure as he has already tried to get me to leave. he even tried to get his own room in the house just so he had access and an interest in it.
could dad put it in a will that it goes to my mum thereby avoiding the IT - but only under the proviso that she cannot sell it and it is passed to me on her death?
or has he no right over what happens to it in the future?
i just want to sort this for his peace of mind - hes old and hate to think of him worrying about this and blaming himself - but also for me so i am secure for the future
my dad bought properties - houses and shops - when we were kids in the 1970s, for exactly this reason - so he could be sure we all had some security when they were gone
that seems really odd what you are saying joko - not that i want (or you probably )! to get into an arguement about HB, what you are saying does not make sense - you don't pay rent except when you are entitled to HB, when you feel "you" (ie the taxpayer) ought to give him something? he wouldn't take any money off you personally, but doesn't mind it if it's not actually you, but other people paying (!) Previously i was always on your "side" when i saw you getting into arguements about the HB situation with other people, but strangely you never mentioned you don't pay any rent normally, but when you are unemployed, you dad suddenly charges rent so that the govt can pay it
Despite your protestations, it sounds like a total fiddle to me
Despite your protestations, it sounds like a total fiddle to me
i know what you're saying but i cannot force him to take it - this is what i mean about him having given me the house, in his mind its mine.
i would get housing for anywhere i lived if i was unemployed - so i am getting no more than in am entitled to - so not sure how that's a fiddle!
he would also get full rent for any tenants he had here - so its also no more than he is entitled to.
it is also a very low rent i claimed - much less than the going rate.
i did pay rent at first, when i was working, because this house was supposed to have tenants in and they lost a source of income when they allowed me to have it, but i realised he always found a way to give it me back so it just stopped. he would go mad at my mum for taking it off me.
i do give my mum money now since they retired - he doesn't know that though.
i also pay for repairs etc
its irrelevant anyway, my question is about IT.
i would get housing for anywhere i lived if i was unemployed - so i am getting no more than in am entitled to - so not sure how that's a fiddle!
he would also get full rent for any tenants he had here - so its also no more than he is entitled to.
it is also a very low rent i claimed - much less than the going rate.
i did pay rent at first, when i was working, because this house was supposed to have tenants in and they lost a source of income when they allowed me to have it, but i realised he always found a way to give it me back so it just stopped. he would go mad at my mum for taking it off me.
i do give my mum money now since they retired - he doesn't know that though.
i also pay for repairs etc
its irrelevant anyway, my question is about IT.
it's sort of relevant if you are trying to persuade the Govt both that the house is yours (to avoid IHT) AND at the same time that it isn't yours for the purposes of gaining HB. However, if the previous answers are correct, (of which i have no doubt) i suppose it doesn't make any difference.
By "fiddle" i mean that you have a fake tenancy for the purposes of HB from what you say. Both you and your dad consider the house yours, until you need to magic up a tenancy so you can claim HB
By "fiddle" i mean that you have a fake tenancy for the purposes of HB from what you say. Both you and your dad consider the house yours, until you need to magic up a tenancy so you can claim HB
==Further, the 7-year rule doesn't represent a dramatic cut off point. It's a sliding scale, so you'd pay less if your father died (say) 6 years after making an outright gift than if he did so only one year on.
==
Not actually true - taper relief (much misunderstood) only applies if gifts in one year exceed the nil rate band
It looks as there would be no IHT here anyway given OP's low valuation of the house
==
Not actually true - taper relief (much misunderstood) only applies if gifts in one year exceed the nil rate band
It looks as there would be no IHT here anyway given OP's low valuation of the house
i do have a tenancy agreement and a rent book.
but i no longer claim housing since i became self employed.
the point is, by being very generous and giving me a house, they lost out on 18 years of 2 maybe 3 sets of rent, that they could have claimed if i hadn't been here.
They have both worked all their lives - never claimed a penny from the government - ever - they ran 2 businesses that gave jobs to lots of people and also various family members, and they provided housing for plenty of people over the years too.
i cannot help having a very generous dad who was prepared to lose out on a lot of money so i could have a place to live, and if i can legally get him £55 a week in housing benefit every now and again - without him refusing to take it, even though they have now both retired and are struggling on pensions and a couple of bedsit of tenants rents - then that's what i will do.
but i no longer claim housing since i became self employed.
the point is, by being very generous and giving me a house, they lost out on 18 years of 2 maybe 3 sets of rent, that they could have claimed if i hadn't been here.
They have both worked all their lives - never claimed a penny from the government - ever - they ran 2 businesses that gave jobs to lots of people and also various family members, and they provided housing for plenty of people over the years too.
i cannot help having a very generous dad who was prepared to lose out on a lot of money so i could have a place to live, and if i can legally get him £55 a week in housing benefit every now and again - without him refusing to take it, even though they have now both retired and are struggling on pensions and a couple of bedsit of tenants rents - then that's what i will do.
joko - I know you are in Liverpool but have you ever thought of obeying the law ? OK OK i take that back - I am being Mr Nice Guy today
leaving aside HB claim which I think you must have realised is 'iffy'.
I think your Dad should see a lawyer about a will - IHT is paid on his death on the whole of his estate (plus those bits he has transferred to others in the last 7 years). He needs advice on whether to transfer property formally to you or any other siblings and what effect this has on the tax bill (probably none, ) so he may be advised not to do anything (besides write the will)
Your views are like my brothers: here are the facts can we twist them this way or that way to minimise tax ?
it would be much better if you took the view of 'these are the facts, now what is the tax liability?'
this avoids the trap of saying crazy things like - last week it was his house but its really mine like this week and next week it will be his again.
leaving aside HB claim which I think you must have realised is 'iffy'.
I think your Dad should see a lawyer about a will - IHT is paid on his death on the whole of his estate (plus those bits he has transferred to others in the last 7 years). He needs advice on whether to transfer property formally to you or any other siblings and what effect this has on the tax bill (probably none, ) so he may be advised not to do anything (besides write the will)
Your views are like my brothers: here are the facts can we twist them this way or that way to minimise tax ?
it would be much better if you took the view of 'these are the facts, now what is the tax liability?'
this avoids the trap of saying crazy things like - last week it was his house but its really mine like this week and next week it will be his again.
