'New' IHT rules is no concession.

"Roger Mills" wrote

But in the context being considered here, the half given away to the children really *has* been given away, as evidenced by its inclusion in the deceased's will. The children might even live there alongside the surviving parent...

"Roger Mills" wrote

But the surviving spouse already has the right to live there because they own the *other* half of the house!

"Roger Mills" wrote

That can be said equally for the (possibly grown-up) children (still living in the house), as for the surviving spouse. So I'll ask again - "do the offspring *have* to pay rent to the parent(s)" ?!

Reply to
Tim
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They might indeed, and then there would be no problem. The problem only arises when they do not, and when the surviving parent enjoys exclusive use of the whole house while owning only half of it.

This much is true in the CGT context under the GWR rules.

Whether it is also true in the IHT context is less clear, and I'm not sure about, but it might be deemed that the children, by allowing the parent to live in "their" half-house rent-free, have in effect gifted to the parent the value which is represented by the right to occupy their half of the house. If so, this would boost the parent's future taxable estate.

But that only gives them a right to shared use of the house.

They might if it was theirs first and they then gifted it to the parent, and subsequently shipped the parent out into a home. But quite what they'd want to achieve by that is baffling. What's behind your question?

Reply to
Ronald Raygun

"Ronald Raygun" wrote

Howso? In effect, the child(ren) could gift *cash* to the parent, then the parent pay the cash back to the child(ren) as rent. There's no effect on the parent's future taxable estate (the cash isn't left in it at time of death & hasn't been gifted out within 7 years either).

"Ronald Raygun" wrote

Of course. But the other owner(s) -- the child(ren) -- have the right NOT to live in the house, if they so desire! They all know that the child(ren) own half, even if they don't live there.

"Ronald Raygun" wrote

I wasn't thinking of anything like that scenario! Simply the one (which you introduced earlier), where the house was wholly owned by the dying spouse, and half is passed to the surviving spouse and half passed to the "offspring". They all continue to live there.

Reply to
Tim

That's not a problem. It's when all or part of the house belongs to someone who *doesn't* live there that the rent issue arises.

Reply to
Roger Mills

Why?

Yes, there is a problem with gifts to avoid inheritance tax where the beneficiary doesn't actually benefit from the gift.

But if I own or inherit a house or part of a house, why should it make any difference whether I live in it or whether I let someone else live in it rent free.

If I do let someone live in it rent free or on a below market value rent then that will affect how much of the maintenance expenses I can claim as tax deductable but it makes absolutely no difference to whether I own the house.

In the scenario being considered, A and B each own 50% of a house. A dies and leaves their share to C. C allows B to use C's inherited share rent free.

This is very different from A dies and leaves their share to B who then gifts it to C. C then allows B to use C's gifted share rent free.

Tim.

Reply to
Tim Woodall

The main one is people selling their business on retirement.

Reply to
Jonathan Bryce

So they can show that that part of the house belongs to the offspring. Otherwise the gift is not effective for IHT purposes.

Reply to
Jonathan Bryce

Don't forget that in this context we aren't talking about a gift by the continuing occupier of the property, but a bequest by the deceased spouse of the continuing occupier.

Does that make a difference?

Reply to
Ronald Raygun

But, in this case, there would be a benefit. Owning a house (or part of a house) is seen by many to be a sound investment.

If someone gives away a share in a house would the beneficary really have the cheek to charge them rent as well?

M
Reply to
Mark

Well, the children *could* gift cash to let the parent pay rent, but if they don't, are you suggesting that it should be retrospectively pretended that they had? And if they did make the cash gifts, are you suggesting that they make them each year (or even month)? For if it were done for (say) 20 years up front, then the cash *would* be left in the estate at their death, and what if the parent survives for more than the chosen number of years?

Sure, but it's not about what the children have the right to do or not do, but what the parent can do. If the parent is alone in the house, it could conceivably be deemed by the nasty tax people that the parent is enjoying use of the whole house. The parent could, for instance, invite friends to stay, complete with kids, and put them up in the children's rooms, or run a B&B...

Well in that simple situation neither party would be expected to pay rent to the other. They both own half the house and they both occupy half the house. The rent question only arises if one of the co-owners does not occupy the house, and then only if the sole occupier would be deemed to be occupying the whole house and so be deemed to have been gifted the right to do so.

This is only a suspicion, and I'd be interested to learn whether the taxman would in fact do such deeming. Like I said, I don't know (but would like to know) whether similar thinking would apply here as it does in a GWR situation.

The non-occupying child who co-owns the house with the parent still has another problem when the 2nd parent dies. The child will be living and be established elsewhere, and would probably choose to sell the house. The house will not have been the child's PPR during its ownership of the half inherited from the 1st parent, so even if IHT is avoided because each of the two halves fall below the IHT threshold, the child will be stung for CGT on the gain in value on the half which the child has owned since the 1st parent's death.

OK, the gain will be rather less than the value itself, so it's not so bad, but is this really true? How would the child's half be valued for CGT purposes upon acquisition? Given the unevictable sitting tenant in the form of the parent who owns the other half, the child's half is effectively unmarketable and hence practically worthless. So almost the whole of the half-value of the house at

2nd death would be pure taxable gain! Wouldn't it?
Reply to
Ronald Raygun

The main thing of course is that the children have to pay tax on the rental income, and if they didn't do so, there would be problems one way or another.

Reply to
Jonathan Bryce

In message , snipped-for-privacy@woodall.me.uk writes

It will effect every retiring business owner whose retirement tax bill has just increased by 80%.

Reply to
John Boyle

In message , Andy Pandy writes

That is a retrospective statistic. 1) House price inflation has only occurred in the last few years. 2) most 'first to die' estates are only technically below £300k, because joint ownership or spousal bequests defers the assets to the second death 3) Nil Rate Band Trusts ensure the estate doesnt exceed the NRB.

... but many of whom were once married and are now widowed. They most certainly WILL benefit form the change.

NO. it will merely slightly reduce the rate of increase in IHT receipts that would have fallen, like a windfall, into the Treasury's lap.

No. Most people either adjust their deceased's spouses will after death, or foresee the problem and arrange a NRB Will Trust. All this change has done is enshrine the principle in law. The effect on receipts will be very small, and that only because those who died in the past who did not use their NRB to the full can now have their unused proportion resuscitated.

Reply to
John Boyle

"Ronald Raygun" wrote

No, I simply suggest that any gift from the children, from allowing the parent to live there rent-free, is just the **rental value** (as and when rent would be due).

"Ronald Raygun" wrote

Effectively, as at the date of each (notional) rent payment - so yes, probably monthly.

"Ronald Raygun" wrote

The gift will only have been the rental value upto date of death, and any future rental values are not gifted.

"Ronald Raygun" wrote

That argument could also be made if a child bought a *new* house and allowed the parent to live there rent-free (without the house ever being owned by the deceased spouse or the surviving spouse). Would the "nasty tax people" say that the parent enjoyed the use of the (new) house while they were alive, and so it should form part of their estate on death?

"Ronald Raygun" wrote

But surely that gift (of the right to live there), has no residual value left on the parent's death, and so there is nothing left in their estate? [It also wasn't gifted-out by the parent in the seven years before their death, so doesn't fall into their estate that way either.]

"Ronald Raygun" wrote

I don't think it would be unmarketable - indeed, I would buy that 'worthless half' off them for a tenner (they'd be a tenner up!) and I wouldn't mind paying the CGT when the house eventually gets sold (at whatever point in the future).

Reply to
Tim

I see, so when you mentioned gifting cash, you were being mischievously misleading? I should have known. :-(

There is also the point, made by someone else, that even if the gift and rent are notional, in the sense of no money physically changing hands, the kids would still have to pay income tax on it.

They might well. If they would in the previous example, then they certainly would here as well.

I'd say if I could only get £10 for half a house, then it *is* effectively unmarketable. Tell me, up to what proportion of half the market value of the whole house would you be prepared to pay for the half house, in the situation where the sitting tenant or his/her successor in title could remain forever until they can be made to leave and sell "voluntarily"? I mean, as co-owner you would have rights to occupy too, and you could hang up your smelly socks in every room, or deport yourself unpleasantly in some other manner.

Reply to
Ronald Raygun

receipts

So less money going in than would otherwise have been the case.

Which means not many people will benefit.

So a minority will benefit, and the majority will lose out.

Reply to
Andy Pandy

"Ronald Raygun" wrote

Not at all - no mischief intended. I was trying to point out that the value of the gift is the rental value, by putting this into terms of cash notionally changing hands.

"Ronald Raygun" wrote

Of course, but that is separate to IHT on the (surviving) parents estate.

"Ronald Raygun" wrote

Yep, I know!

"Ronald Raygun" wrote

Why do you say that? The comment only really makes sense if you believe that the "true" value is much higher than 10. But in that case, you can't also say that it is "practically worthless"...

"Ronald Raygun" wrote

That would be for the negotiations to discover! ;-)

"Ronald Raygun" wrote

Sounds like you are suggesting some ways to ensure that they leave sooner rather than later. Ta!

Reply to
Tim

You do a good line in unintended mischief, then. :-)

But you didn't. You put it in terms of cash actually changing hands.

That's as may be, but if the kids are HRTPs, then any rent the parent didn't pay would be taxed under IHT at the same rate as any rent the parent did pay would be taxed as rental income.

Wipe that smirk off you face.

Because it is effectively impossible to realise the true value immediately. Its "true value" is, if you like, latent, and locked away for an indeterminate time.

It is "practically worthless" *at the time*.

Yes, it would bring forward the time at whichit again became effectively marketable.

Why? That sounds as though you think I made your point for you, but as I see it, the "gentle persuasion" simply accelerated the gain. The gain arose as a result of the property becoming vacant, and this happened after acquisition, so CGT applies, unless PRR is available, which admittedly would be likely.

Reply to
Ronald Raygun

"Ronald Raygun" wrote

:-)

"Ronald Raygun" wrote

I thought I said "...could..." -- oh yes, I see I did

"Ronald Raygun" wrote

:-(

"Ronald Raygun" wrote

"Ronald Raygun" wrote

If the owner thought that, then they should be happy to accept the tenner!

But if they believed they'd be able to get much more at some point in the future, then they should value the house (on a discounted cashflow basis) at a higher value than ten pounds. I'd probably offer a bit more, too!

"Ronald Raygun" wrote

Because it would "help" me if I did buy the house for a tenner ...

Reply to
Tim

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