CGT and IHT implications of gifting parents property to Children

by **Kryptos** on Sun Dec 17, 2006 4:37 am

My father died last year and my mother who now lives alone and is ambulant disabled has been advised to establish a trust whereby 3 of the 6 children jointly share ownership of the house she lives in.

The advice was provided on the basis that this mechanism might provide some protection from LA pursuing assets (house)in the event of her requiring care provision in the future.

What are the implcations of this arrangement on IHT and also is there any CGT liability for the children who will enter into the trust.

by **cta** on Sun Dec 17, 2006 5:25 am

Can you confirm that the house was jointly owned by your mother and father at the date of your fathers death ?

Please can you also give an idea of the value of the property ?

by **Kryptos** on Sun Dec 17, 2006 8:12 am

I believe the house was jointly owned at the date of my fathers death. Could you please clarify implications if not.

The house value is in the region of Â£120-150K.

The trust would be set up with each child having a 25% share with my mother retaining a 25% share,

by **cta** on Sun Dec 17, 2006 3:19 pm

A deed of variation of your late fathers will can be executed within two years of your fathers death to re-direct his half share of the property into trust.

In that case, your mother will not be deemed to have never owned your fathers share for Inheritance Tax purposes, and as far as the LA are concerned.

If the trust is set up by your mother however, and not by a deed of variation, she has made a gift, which may be a gift with reservation for IHT purposes if rent is not paid at the market rate (relevant depending what other assets your mother has). The LA will also say she has deliberately deprived herself of assets as far as care fees are concerned and may come to the family to fund them.

In your scenario, 25% seems to be coming direct from your mother which may attract the IHT and LA problems identified above, but a DOV for 50% may work.

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The above is for the information of readers. Whilst every effort is made to ensure accuracy, information contained may not be comprehensive and recipients should not act upon it without seeking professional advice.
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by **cta** on Sun Dec 17, 2006 3:29 pm

Sorry. CGT ...

The trust deed would need to specifically allow your mother to occupy the property for main residence relief to continue for the trustees, in which case HMRC are likley to say it is an Interest In Posession trust and be subject to IHT, which may not be an issue depnding on other assets owned (what are these please ?).

Otherwise, the trustees would be liable to CGT on the gain on the property between the date the property enters the trust and the date of sale of the property.

by **Peter D** on Mon Dec 18, 2006 1:10 am

This always a difficult one. Should your Mum go into care the LA will assess her estate to arrive at a figure for the care fees. If they deem the esate to have been deliberately deprived of assets to avoid the fees then they will evaluate the fees as though the changes have not been made and arrive at the fees. Now if the fees can not be paid by Mum's estate or you the family, they can in extreme cases undo those changes, close trust and regain the assets and even take the house by forcing it's sale. It is estreme but they can and do, any even trace back 10 yeras or more to find what happened to the esate. My most recent case took a sensible approach. As soon as the father went into care he approved his house for the rentqal market. The family spuced it up and it is now rented out very succesfully. The income ( profit after expenses, agents fees etc, and the fathers state and occupational pension pay the fees leaving a little over. The house is rented furnished so 10% relief against income. The house remains in the fathers name so PPR qualification for 36 months after the tenancy date, then Letting relief and Taper Relief will keep the house out of anyones CGT liability many years. Should the Fathere pass away then the house will go to his children with out any CGT as he remained the owner. The estate value is infact below the IHT 285K so it is quite simple. I have addressed several cases with this solution and everyone is happy. The LA is not out to get you. They have a responsibility to assertain a fair rate of charge for care fees and it is up to teither the person incare or the family to source those funds. If you can not afford to pay in the longer term then generate income by renting the house out although you may not gereate all the funds with that and have yo contribute yourselves but the asset of the house will remain in the family. I hope that helps in these difficult times. Regards Peter

by **Kryptos** on Mon Dec 18, 2006 11:56 pm

a little further information -

My father died intestate - so no will to vary.

The trust includes a provision whereby my mother will remain in residence but does not pay rent etc but is responsible for all other charges in connection.

The trust also includes a provision that in the event of the death of my mother this triggers a process whereby the house is then shared equally to all surviving children (6 No inc the 3 trustees). This is also how her will details the treatment of assets (no significant assets other than house). How does this affect the CGT position on eventual sale?.