Gifting property and the new residential nil rate band

[Milo53]

My dad has recently passed away and my mum (age 86) has now moved into a care home. She now wants to give the house, valued at £650,000, to her three children. I wish to take on the house and live there permanently, paying each of my sisters 1/3 of its value. She also has other assets valued at approximately £500,000. Her life expectancy is unknown.

With this new residential nil rate band coming in next week, is this the best way forward? If the property is given, can we still claim the new residential nil rate band if my mum passes away in the next seven years?

[maths]

The issue is one of IHT v CGT.

Did husband leave all his assets to wife? If so on her death IHT will be based on estate worth £1.1m less £650k nil rate band plus £200k residence nil rate band if death in 2017/18 and house left to her children. 40% on say £300k ie £120K. No CGT charge arises.

If she has lived in the house since it was bought and she gifted it in lifetime (then no CGT) and then survived 7 years it would fall outside of her death estate. IHT then based on £500k less nil rate band £650k ie no IHT.

But if she gifts in lifetime (no CGT) but dies within 7 years (lets say within 3 years) then IHT would be based in essence on £1.1m less nil rate band of £650k but no residence nil rate band ie 40% on say £500k namely £200k.

[Milo53]

Thank you for your response. I wasn't expecting any issue with CGT. My parents had lived in the house for 50 years and it was the only property they owned during this time. Is this correct?

My father left everything to my mother, and the house was jointly owned.

If the house was sold to myself at a reduced price of £350,000, and stamp duty paid on this, could we then claim the RNRB up to £350,000 after April 2020 should she survive to then? The benefit of RNRB would be £140,000; the cost of stamp duty would be £7,500.

Any suggestions as to the most tax efficient way to proceed?

[maths]

As parents lived in house (then as I pointed out) there are no CGT implications.

If house sold to you for 350k then SDLT charged on 350K but for IHT there has been a lifetime gift (PET) of 300k.

If mother died in 2020/21, say, then nil rate band available is 650k but there would be no residence nil rate band as mother would not have left the property in her will. IHT thus on PET of 300k plus 500k less 650k ie 40% on 150k namely 60k.

[Milo53]

I have read the following on HMRC's website and the information given is most confusing. It clearly says "sold or given away their home after 7th July 2015" So will we be entitled to the new RNRB as HMRC seems to suggest?

"Basic rules
An estate will be entitled to the RNRB if the:

individual dies on or after 6 April 2017
individual owns a home, or a share of one, so that it’s included in their estate
individual’s direct descendants such as children or grandchildren inherit the home, or a share of it
value of the estate isn’t more than £2 million
An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015.

The maximum available amount of the RNRB will increase yearly.

For deaths in the following tax years it will be:

£100,000 in 2017 to 2018
£125,000 in 2018 to 2019
£150,000 in 2019 to 2020
£175,000 in 2020 to 2021"

[maths]

If mother died in 2020/21, say, then nil rate band available is 650k but there would be no residence nil rate band as mother would not have left the property in her will. IHT thus on PET of 300k plus 500k less 650k ie 40% on 150k namely 60k.

should have read:

If mother died in 2020/21, say, then nil rate band available is 650k but there would be no residence nil rate band as mother would not have left the property in her will subject to the downsizing relief provisions. IHT thus on PET of 300k plus 500k less 650k ie 40% on 150k namely 60k.

[AnthonyR]

One other thought, is if your mother gifts say 2/3 of the property to the three of you now and leaves the remainder in the will, this should have the benefit of starting to remove some from the estate, but at the same time retaining some of the interest in the property to pass down to the children in due course.