parents moving house

[nickl]

Hi, my parents who are in their late 70's and struggling to look after themselves and have agreed it would be best to move from the family home to a house nearer to us children so we can look after them better. We have found an ideal bungalow and made an offer which has just been accepted.

My parents have enough cash to purchase the bungalow up front and not sell the existing home until they are happy with the new one (and give us children time to declutter a lifetime of items and make the existing home more presentable for sale!).

They would like to buy the new house in our names (there are four of us children) and also keen to ensure the existing house sale is arranged out of inheritance tax liability i.e proceeds of sale divided between us children.

I'd really appreciate some advice on whether and if so how we can offset tax in this situation

Thanks in advance for any guidance.

Nick L

[Budget83]

I know a bit about inheritance tax there are others that will be able to give you a full breakdown.

Unfortunatly the plan to buy the house in your name is effectivly gifting you the money to buy the house. Gifts over £3000 are chargable in an inhertitance siutation if your parents die within the next 7 years.

However becuase your parents are going to live in the house it is called a gift with reservation and the above does not apply. The only way around the above would be if your parents paid a market rent to stay in the house. That way it isn't a gift with reservation.

I am assuming that your parents estate is worth over £650,000 otheriwse you have nothing to plan for inheritance tax wise.

[nickl]

thanks for this info, I didn't think the taxman would make it straight forward!

Yes, our parents estate would still be just over £650k even if gifting both the new house and the existing house.

Regarding the new house, hopefully our parents won't die in next 7 years, so would another way round the "gift with reservation" be for my parents to gift us money equivalent to the value of the house either before or after the sale and we buy the house from our own accounts/financing in our joint names e.g with a bridging loan? I guess what I'm trying to get at is whether there are any subtle differences in how and when our parents gift us the money and in how the house is purchased.

With the sale of the existing house I was wondering if there was any more tax efficient means other than our parent gifting us the proceeds and it coming under the 7 year rule.

Thanks again for any advice.

Nick L

[Loza]

The gift of the proceeds from the existing property is a straightforward PET, exempt if they survive 7 years with taper relief available against the tax at 20% for each year after the 3rd year.
If your parents never own the second property but provide the funds for the purchase then pre owned asset tax will be in point since they will have contributed to the property they will then occupy, unless they elect for it to be treated as a GWR,they will also have made a second PET on the cash gifted to finance the purchase.
I cannot see a better option of gifting the proceeds from the first house,
given their estimate of longevity,I think you are making a mistake in trying to seperate the ownership of the new house from occupation, I would look to gift other assets with a view to containing the house and other assets to K650