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Posted: Tue Jul 24, 2007 5:51 am
by JRHants
I appreciate that this isn't a common scenario, but I would be grateful if someone could possibly advise how to go about arranging this:

I understand that if a parent has adult offspring living with them at home there is a way to mitigate inheritance tax. This particular question concerns a sole surviving home-owning retired parent, with unmarried daughter (only child) living at home.

I understand that a joint tenancy needs to be arranged, then the 'child' so to speak, has to contribute towards household expenses in some way to validate the arrangement.

Assuming that this is the case, in the eyes of HM Revenue & Customs, are there any specific requirements with regard to the actual financial contribution of the daughter that need to be satisfied (proof of contribution etc)?

Finally, could the daughter spend their £3000 tax-free annual gift allowance from the parent on the required financial contribution of household expenses without upsetting HMRC?

The difficulty here is that the daughter has very limited finances, so it would be nice to help her fulfil any financial requirements under the supposed arrangement.

Many thanks in advance and apologies if I have been long-winded with my questions.

John R

Posted: Tue Jul 24, 2007 7:21 am
by Lee Young
If the parent and child live together in a property wholly owned by the parent the parent could give the child half and after 7 years, provided they are still living together, the value given away will escape IHT. If the child ever moves out the parent will have to pay the child a market rent for occupying the child's share of the propertry for the entire time the parent wishes to remain in the property, as otherwise a gift with reservation of benefit situation will arise.

There must be no benefit to the parent - is if the gift is made the child then pays more than his ir her fair share of the outgoings. Not a problem for you here - quite the opposite which is fine.

The parent needs tobe sure securityyof tenure is not affected, but this could be achieved by the parties executoing a declaration of trust governing their mtutal rights under the co-ownership they create.

Lee Young
lyoung@clarkewillmott.com

Posted: Tue Jul 24, 2007 7:53 am
by Peter D
I would like to know more about the background, the estate and property value and when the deceased spouse died and did they have an IHT efficient will. Regards Peter

Posted: Tue Jul 24, 2007 3:30 pm
by JRHants
Thanks very much for your replies Lee and Peter.

Lee, does the 7 year period apply regardless of the type of arrangement (gift/joint ownership), or does the daughter's contribution to the outgoings (once the joint ownership is arranged) negate the 7 year ruling?

Peter, unfortunately there was no IHT efficient will and it is well past the two year period for making variations to the will. The daughter has always lived at home and has no assets or dependants. The current estate value is approximately £425,000, the house accounting for around £400,000 of that.

Many thanks again,

John R

Posted: Thu Jul 26, 2007 6:57 am
by Lee Young
the 7 year rule applies to allnon spouse/charity gifts.