Inheritance tax: residence nil rate band

[Gemma40]

Hello,

I have searched for the answer to my question online without success - perhaps someone here could help me?

My widowed mother wants to sell her house and give the proceeds to me and my brothers.

I have been on the HMRC site and see that she can downsize, as long as she leaves assets of equivalent value; and that the new allowance ' will 'apply to reduce the tax payable by an estate on death'' but "won't apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death"


Does this mean that we would pay inheritance tax on anything she gave us? And would thus forfeit our right to the main residence allowance?

I have read all the downsizing examples on the HMRC site but can't find anything about giving proceeds of house sale to children.

Any advice would be much appreciated - thank you!

G

[AnthonyR]

The residence nil rate band applies where an interest in a home, or the proceeds of the sale of a home are left to children/grandchildren on their death. If your mother sells her only home and then gifts the entire value to you prior to death she can't leave the value to you on death.

However, the gift is a PET (Potentially Exempt Transfer) which means that if she survives 7 years then it is outside of her estate. If she dies within 7 years the value will be added back into her estate, although if it's more than £325,000 and more than 3 years have elapsed then there may be some saving due to taper relief.

Just be aware that there are anti avoidance rules where she retains a benefit in the gift (for example she gives you the money and you then buy a property for her to live in) which could result in the gift being ineffective.

[maths]

Agree with Anthony's post subject to adding that even if mother makes a lifetime gift of her residence a downsize addition at time of her death may be available depending upon what (and the amount of) other assets in her estate are "closely inherited".

[Gemma40]

Thanks very much for your replies. I think I get it now: she can gift us the proceeds of the house but they will be taxed in the old way (650 tax free); she has to leave assets worth at least 200.000 if we want to take advantage of the nil rate bank the estate would currently be entitled to. We would not be taxed on this 200. If she leaves nothing we lose out. Thank you!