Advice Inheritance Tax ("IHT") question

[Lamp]

If my Dad makes a gift to me of his house, and survives 7 years, there's no IHT due provided he doesn't obtain a "benefit" from the house (eg by living in it).

If he gifts the house to me, and I allow him to continue living in it, provided he pays me a market rent, and he lives 7 years, there's no IHT to pay.

Now...

I don't want him to be out of pocket, so, I make a gift to him each month for whatever the market rent is. I'm assuming he'll have to declare that as income for Income Tax purposes?

He then pays me the market rent - again, I assume I have to declare this as official income?

Net result: No liability to IHT, both our accounts are balanced, and the only liability would be 2 sets of income tax ? Gotta be cheaper than a whacking great demand for 40% over the £325,000 hasn't it?

 

[taB]

Won't work, seek proper advice.

 

[soze]

I do not think you can ever truly be given a house. My friend was give his parents house and got slaughtered for tax many years latter and was told he needed to buy it for "fair market value".

Seemingly the way round it is your Dad needs to leave the house to a trust which will not pay IHT. If you sell the house a take the money out of the trust you get stung for tax though I believe.

Re the gifting rent back an old boy in my Nan and Grandads retirement home bleeds the Government for every penny he can so various interests get paid to his son. This way no tax when he dies and he just uses a Debit card on his sons account to spend the money.

 

[Moriath]

They closed that loophole about 12 years ago

 

[Edmond]

My dad signed over his house to my brother and i in 1999 and yes 7 yrs have passed, but not long after he did that, Gordon Brown (chancellor at the time) closed the loophole to stop people doing it, as far as i'm aware

We got away with it. My brother lives with my dad so he will be ok, but legally as i am a landlord (of sorts) i might have to pay capital gains tax as i dont live in the house.

 

[Job]

Its in the papers today...councils chevking up on people gifting houses..exactly what they can do about a perfectly legal procedure..I dont know...but Im sure theyll find a way

 

[Trem]

Is the best way not to put the house into a trust? Not overly sure about avoiding IHT this way but it makes it very hard for the council to have the sale proceeds if your dad ends up in care. Thing is they can trace back so whatever you do may not be enough.

 

[Edmond]

We tried doing it with my nans house, but as she was my mums mother (and she had passed a few yrs before) my dad, not being next of kin had to try to get power of attorney when she started to get dementia.

The fuckers dragged it out for over a year and then got round it by saying she wasn't in a sound frame of mind to make any such decision, even though she was and it was her idea to get everything out of her name.

We sold her house for £85k and they took everything but £16k to pay for her council run care home. She had worked all her life (past retirement) and had owned her own house.

Still makes my blood boil even now. Its one of the reasons my dad signed everything over to my brother and i, as he didnt want the same thing to happen

 

[Exioce]

You'll pay full tax if you're a little person, face it.

 

[Chilly]

Pay your fucking taxes. End of.

 

[Chilly]

We tried doing it with my nans house, but as she was my mums mother (and she had passed a few yrs before) my dad, not being next of kin had to try to get power of attorney when she started to get dementia.

The fuckers dragged it out for over a year and then got round it by saying she wasn't in a sound frame of mind to make any such decision, even though she was and it was her idea to get everything out of her name.

We sold her house for £85k and they took everything but £16k to pay for her council run care home. She had worked all her life (past retirement) and had owned her own house.

Still makes my blood boil even now. Its one of the reasons my dad signed everything over to my brother and i, as he didnt want the same thing to happen

Which bit makes your blood boil? That someone sitting on an £85k asset should be expected to contribute to their care?

 

[Chilly]

Is the best way not to put the house into a trust? Not overly sure about avoiding IHT this way but it makes it very hard for the council to have the sale proceeds if your dad ends up in care. Thing is they can trace back so whatever you do may not be enough.

Trusts recently got nerfed for this kind of dodge. You can still do it but it's far more restrictive and less useful.

 

[Raven]

Which bit makes your blood boil? That someone sitting on an £85k asset should be expected to contribute to their care?

That depends on whether they have already contributed tax their entire life. Property is already taxed upon purchase, then taxed monthly and before that the money to pay the mortgage is taxed.

Income is taxed, sales are taxed everything is already taxed.

It's not so much the tax itself its the principle. Why should someone who has paid tax at every stop in life have to then pay 40% of their stuff to the government for them to waste on pointless shit.

Inheritance tax is designed to make sure the plebs don't build up a family pot, everything you earn will end up going back to the state one way or another, sooner or later. Spend the fucker long before you are dead.

My mums worrying about tax and shit for when she dies, she already paid out 500k (don't know the exact figure) or so when my Granddad died. Told her to get spending and give the government as little as possible.

 

[Kryten]

So just to clarify, this property is worth over 325k? That's either some house, or some poke in the middle of Nodnol?

 

[Chilly]

IHT is an important mechanism to help redistribute stagnant wealth. If you're complaining that the rich get away with it, hire an accountant and do what they do.

 

[Moriath]

So just to clarify, this property is worth over 325k? That's either some house, or some poke in the middle of Nodnol?

Actually if her hubby (assuming here was one) didn't use his 325k then they can put both together on the death of he last spouse so it's 650k

But it's not that it's avoiding paying for care out of the estate is the main reason for doing this now. Which is why my mum and sister owned my grans house cause it was before the rules changed now she is in care they were able to sell the house without losing the money to the care system as she is now in a home with dementia.

 

[rynnor]

IHT is an important mechanism to help redistribute stagnant wealth. If you're complaining that the rich get away with it, hire an accountant and do what they do.

You cant really - the rich can avoid paying any inheritance tax through these scandalous deals with the taxman whereby they agree to open their stately homes to the public one wednesday afternoon in october by prior arrangement only.

The little people are just expected to bend over and take it.

 

[Lamp]

I'm interested in the 650K thing. How does it work? Are you saying the children only have to pay IHT on the excess over 650K?

I'm going to need to get professional advice on this methinks.

 

[Edmond]

Which bit makes your blood boil? That someone sitting on an £85k asset should be expected to contribute to their care?

She paid her taxes (NI) all her life and paid her way to live in her own house, why should it be taken away from her. She spent the last year of her life having her money taken back off of her whilst she shared the same care home with people who had lived there life on benefits getting the same care for free.

Yes the fact she had everything she had worked taken from her while others get it for free pisses me off

 

[Moriath]

If your grandad or whatever didn't use his iht allowance when his assets passed to his wife then she can use both his and hers when she passes.

That means the iht threshold is 650k not 325k.

That's as long as she hasn't used up everything on a care home.

That's how I took it. There maybe dates where that's usable or not fro time of death but I believe my mum can use it after my dad died 12 years ago

 

[rynnor]

She paid her taxes (NI) all her life and paid her way to live in her own house, why should it be taken away from her. She spent the last year of her life having her money taken back off of her whilst she shared the same care home with people who had lived there life on benefits getting the same care for free.

Thing is the system is broken - all the taxes she paid were used at the time.

All her costs come from the current taxpayers who will be extremely lucky to get anything by the time its their turn.

The current generation of pensioners are the best off there will ever be - their kids will all have to work years longer and receive far less to pay for it.

 

[MYstIC G]

Get professional advice.

My, rough, understanding is that you might want to put the property into joint ownership as Tenants in common where upon death the share of one owner passes directly to the other with the shareholdings in such percentages that whatever your Dad holds will be under the IHT threshold at the time of his passing.