IHT strategy

[leon]

Will this strategy work to help mitigate eventual IHT?

Parents own a property valued in the region of £350,000 and are leaving it to down size. As it is the parents primary home they can sell it without any GCT implications. The parents sell it to their daughter for say £5000. As the daughter and husband already have a home the daughter plans to rent out the parents old home.

Obviously the parents have created a PTE amounting to the true value of their home (£350,000 minus £5000) and will need to survive for 7 years

But as the sale is between connected persons the parent’s property is deemed to have been sold for the full market value of £350,000. Therefore if the daughter should eventually come to sell the parents old property will the base price for calculation gains capital gains be deemed to be £350.000 and not the £5000 they actually paid?

[pqtaxation]

Will this strategy work to help mitigate eventual IHT?

... if the daughter should eventually come to sell the parents old property will the base price for calculation gains capital gains be deemed to be £350.000 and not the £5000 they actually paid?

Yes, there will be PETs of £345k aggregated re parent's IHT (to be apportioned on an individual basis between them) and base cost of daughter for CGT will be £350k but should get valuations now to support the £350k. Parents presumably using their own money to buy new, smaller house.

[cart]

It is comforting to learn that HMRC applies the connected persons regulations even-handedly, even though in this instance it works against HMRC’s potential benefit.

It would be interesting the read the professional opinion; should in this instance it had been the parent’s intention to continue to reside in their home after the sale to their daughter.

Had the parent’s home been gifted and they remained in residence then of course it would have been a “gift with reservation” and its value would have remained within the parent’s estate for IHT.

But in this case there is a legally recognised sale (albeit at only £5000) to the daughter who became the new owner. As there is no impediment to a child purchasing a property for their parents to reside in at no cost, will the fact that it was therefore not a “gift with reservation” be recognised by HMRC; or is there a limit to HMRC’s even-handed interpretation of the regulations.