Parents gift taxable if for the home of two children?

If the parents are willing to make it a gift to their children- (assuming they are sure they will not need the money) then why don't they split the gift between child_a and child_b? (is there a child_c or child_d? If so are they getting a share as well?)

So child_a's share = Y+ (X/2) and child_b's share = X/2

For IHT the 7 years period depends who made the gift. Estates are individual, not joint. If the parents give it 50/50 then an immediate death would leave 50% of X as part of the person who died's estate.

Often the house and much of the money will pass to the surviving spouse though which means the major IHT problem arises on the second death.

Neb

I take it the house will not be the parents' home. Otherwise nasty gift-with-reservation rules could come into play.

It doesn't keep "their contribution" (i.e. Y) free from CGT, it exempts their share of the gain, which is in the same proportion as their ownership at the time they sell. This may well not be Y/(X+Y), if the proportion of ownership changed in the meantime, by shares being transferred (by gift or sale) between the owners. For instance (1), if the house cost X+Y to acquire, and the parents retain a share X/(X+Y) of the ownership, but later gift their share to the children (at which time the parents may have to pay CGT on the value of their share), and if subsequently the children sell it, there will be no CGT to pay by them at all. For instance (2), if later child_a sells half of his share back to the parents (to raise money to buy a car, say), and later the house is sold completely, then child_a will still have no CGT to pay in respect of his (Y/2)/(X+Y) share, but the parents will be liable for tax on (X+Y/2)/(X+Y) of the gain.

Bear in mind that it is not necessarily the case that ownership, and hence gain, will be in the same proportion as how much money the parties contributed. After all, the parental contribution X might be equal to P+Q, where P is a gift, and Q buys the parents a share Q/(X+Y) of ownership.

But yes, to minimise CGT liability, the house should be owned for the most part by those whose main or only home it is. If you could predict both what future gain and future CGT annual exmpt amounts are going to be, and if you can foretell that there will be no major structural changes to CGT law, you could plan to have the parents retain a nonzero share of the ownership, yet still arrange for their CGT bill, if they sell their share before they die, to be zero after allowing for the exempt amount and any taper relief.

Not true. First, be clear whether the parental contribution X is to be a gift or whether the parents will retain an X/(X+Y) share of the house's ownership.

If X is a gift, then only the actual sum X, not a share of the house's value when sold, will be deemed to be part of the parental estate, and the excess of that new total over £285k (or whatever this limit will be at date of death) will be liable for IHT.

If the parents retain a share of the ownership, i.e. if there has been no gift, then the 7 year rule does not apply at all. Their share of the house's value at date of death (irrespective of whether it is actually going to be sold then) will become part of their estate.

The period runs backwards from the date of death of whichever parent made the gift. If both parents contributed to the gift, then each parent has their own 7 year period, and the relevant portion will be deemed part of each parent's estate. Even if all the money actually comes from only one of them, then he (sexist or what) can first gift half of it to the mother, and they can then independently gift their halves to the children. But the parents need to be married to each other (at the time daddy gifts half the dosh to mummy) for this to be effective.

In message , Jason Hallway writes

No, assuming the parents are not a party to the ownership then if (X/2)-£285000 > 0 then the excess would be liable on each death, and any IHT that would be payable would taper off after year 3. The IHT would be payable by child_a. (see below)

If the parents were party to the title then the IHT liability would be (X/2)/(X+Y) (not Y/(x+y)) of the house value at death whenever that is, with no seven year limit. If the house is sold before death then the parents will be liable for CGT on their share of the sale.

AIUI, if the gift is given jointly by both parents then HMR&C would regard each parent as having given half unless there is evidence to the contrary. Perhaps a judgement needs to be made as to which parent is deemed to make the gift or the way in which it is proportioned.

Bear in mind the annual gift allowances, and the previous years, if unused.

Child_b seems a bit left out of it.

If the parents contribute X as a gift, then that is the value of their gift for IHT purposes, regardless of how house prices move - they have given X to their children at the time the house is bought.

On the other hand if this is a shared ownership arrangement, whereby the parents receive a share of the house for their contribution of X, then there is no gift at all for IHT purposes and their share of the house will fall into their estate when they die. (Or they can give it away before they die, of course.)