Avoiding inheritance tax

Possibly, if £1000 per month is a reasonable rent for the property. The children will have to pay tax on this.

I don't know how it would work for nursing fees.

Yeah, move to Yorkshire. ;-)

I can't comment on the tax aspects. But wrt nursing fees:

They need to formalise it by swearing a Deed of Gift (See a local Solicitor) well before any question of residential care arises. Providing they do that and a period (not formally stated but a couple of years would be a good start, hopefully more) elapses before residential accomodation is needed the council will have to accept that the reason she gave the property to her children was that she wanted them to have it, and not to stave off an imminent care home bill.

DG

The professionals will take you to the cleaners if you let them, and they probably won't be telling you anything you can't read on the Inland Revenue website. If the mother trusts the children (and their spouses!), you should be able to avoid complicated trust arrangements.

Remember that gifts out of income are not subject to IHT. As long as she is not liquidating capital to do it I suggest she should pay the minimum realistic rent and also make a regular gifts out of income. The rent will be taxed as income by the recipients. The gifts out of income will not be taxed ewither by the recipient or IHT.

For lifetime gifts to qualify as gifts out of income the executors will eventually need to demonstrate that the gifts formed a regular pattern and that they were out of income not capital.

Robert

If he/she lives for another 15 years say, the gift will cost the giver a lot of money that will be taxed in the hands of receiving parties at their highest tax rate.

roman

It's a FAQ on uk.finance - search and

My only comment is that she will have greater security of tenure using an Assured Tenancy. If she abides by the tenancy contract, the landlords (offspring) have no legal rights to remove her. This can be replicated under an Assured Shorthold Tenancy (AST) by giving a long fixed period, however I believe that fixed periods of 3 or more years move some of the maintenance & repair responsibilities from the landlords to tenant, and even more so on 7 or more years. There is likely to be Stamp Duty Land Tax (SDLT) charged to the landlords with an AST, I'm not sure about an AT as by it's nature it's undated.

Post again once you've got a handle on the (not inconsiderable) issues !

Reading a Which? book would be a good idea - and there's a good specialist forum here

hth

Daytona (Landlord & tenant, not a lawyer)

Thanks I hadn't heard of a deed of gift before.

I calculate that the tax on the rent over even 25 years would be a lot less than the inheritance tax. eg

600k house over 10 years Rental tax = 10 yrs x £12k(rent) x 40% tax = £48k vs IHT = 600k-260k x 40% = £160k

.......................

What if the parent wants to divide the house unequally, eg 1/3 to unmarried son A, 1/3 to unmarried son B, and the remaining

1/3 to be shared between the married son & his two children. = 1/3, 1/3, 1/9, 1/9, 1/9 Can that just be written into the deeds in a fairly simple way, or would it require the setting up of a limited company?

Tony

12k is unlikely to be a realistic rent for a 600k house.

Typical yields are 5% in areas where rents have been depressed by oversupply (too many folk on the BTL bandwagon), but 7%-10% is a more reasonable long term average.

You're suggesting 2%. The IR will have you for breakfast.

Thanks to all, I'll look at the FAQ tomorrow - it's late

Ronald, I take your point.

I should look at at a more realistic equation for a 600K house, thus:- Rental tax = 10yrs x £50k(rent) x 40% tax = £200K ..which is substantially more than the IHT of $136k [correction!]

It seems that simply paying the lump sum cgt is not necessarily the worst option of the two! ..............................

Suppose the parent decided to give the house to her children, and died after two years, would the children incurr both tax on the rent and a full IHT tax?

Thanks Tony

So:- Parent gives the £600,000 house to the children & grandchildren (15 people, some under 18). New owners rent a room to parent at reduced rate which incorporates allowances for management of house, cleaning, feeding students.(Rent, perhaps £800 per month; standing order payment. Written contract. Deed of gift) New owners, not the mother, rent the other rooms to overseas students. Contracts allowing shared use of certain rooms. Mother responsible for feeding students, cleaning, shopping for student food.

The 15 new owners pay tax on rents, (possibly £5000 p/a) . Overseas language students typically stay for a few weeks. Rent is decided by intermediate company, lessor has to take it or leave it (taxman cant say it was deliberately set to evade tax).

TonyJeffs usenet9 at tonyjeffs dot com or

9usenet at tonyjeffs dot com I'd be glad to pay for a telephone discussion or face-to-face consultation with a lay expert, or ex-president on this and similar matters!

X-noarchive: yes

Mum pays rent on her garret room and is expected to buy and cook food for all these students without being reimbursed?

Since she is going to be living in a flop-house with Italian students who will abuse the phone-bill and piss down the side of the toilet, why don't you persuade her to move into somewhere much cheaper and nicer where she will be happy and live for the 7 years you need for your plan to work?

What 7 years? It would have to be till death do them part.

Sure, an ordinary gift would be safe once 7 years had elapsed, but this is potentially a gift with reservation, and so if she moves back in after the piss-artists have, er, pissed off, and does so without paying rent, this would call the whole gift back into question, would it not?

Well Ronald you miss my point completely here, McCarthy & Stone properties are expensive to buy and she would presumably have to sell the existing home to purchase a new one. There would be change out of £600K which she might be minded to gift if it suited everyone's purposes.

BUT what I said was "where she will be happy and live for the 7 years you need for your plan to work?".

Correct me if I am wrong but would not the house slip out of IHT consideration altogether after she has gifted it and lived elsewhere for 7 years, allowing her to unreservation-edly move back into it whenever she wished?

Aha, I didn't register that you were planning for her to sell the house.

That would be fine, just gifting money. But then this scheme would only avoid IHT on a fraction of the estate, and it might not be enough.

Yes, I heard that. My point was that if there is any reservation, then any "gift" won't have been potentially exempt, so the 7-year clock never even started, i.e. the plan simply would not work no matter how long you waited.

No. If she reserves the right to move back into it, no matter when, the plan is fatally flawed. There's also a more obvious fatal flaw: If she sold the house 7+ years ago, how can she move back into it?

By selling 263/600ths of her house to her 18 offspring, gifting them the remainder, moving into a McCarthy & Stone flat purchased for £263K this coming November, "home" in time for Christmas 2011.

Do you have shares in McC&S or why do you keep mentioning them?

And then what? Buy back the 263/600ths while the offspring continue to operate the remaining 337/600ths as a B&B for Italian toy boys? Yes, I guess that could work, but otherwise there could be an issue over the gifted 337/600ths being deemed reserved from the outset.

Minor issue: Where would the offspring find the £263k to buy their share off granny? I suppose they could get a BTL loan to be financed by the Italians.