who pays IHT?

by **bc185** on Fri Sep 09, 2011 10:24 am

Client was gifted house in which his mother lived. The mother moved out of the house and lives in a cottage on the grounds (so no GWR). The client now lives in the house with his family. The Client is considering selling the house. At the date of gift transfer the value was £1.5m and if sold will be 5 years after the gift. Would be obliged for clarification on the following a) what value is IHT calculated on - at the date of transfer by Mother or at date of sale by Client b)how does the taper relief affect the IHT chargeable figure and c) who pays the IHT if the Mother is still alive eg is it the Client as it is simply a chargeable lifetime transfer?

by **tax_schmax** on Fri Sep 09, 2011 11:56 am

Who died?

by **tax_schmax** on Fri Sep 09, 2011 11:58 am

Better clarify that!

It looks like a Potentially Exempt Transfer, unless a trust is involved or a deceased person made the gift.

by **maths** on Fri Sep 09, 2011 1:41 pm

I haven't had to consider this point before, but the gift may not have been just the house, per se, but of land which comprised both house and cottage.

On this basis the gift would seem to be a GWR.

by **pqtaxation** on Fri Sep 09, 2011 1:57 pm

Hi bc185

I had a similar query recently.

You need to describe the situation more fully both at time of gift and subsequently ---- in particular whether the cottage in the grounds pre-dated the gift of the main house and was separately registered; if not, did mother retain ownership of land on which it was built and can she demonstrate she paid to build cottage and is it separately recoreded on Land Register?

by **maths** on Fri Sep 09, 2011 2:01 pm

pqtaxation

I would be interested to know the answer to your query to which you refer.

by **bc185** on Fri Sep 09, 2011 2:25 pm

Thanks for responses - will obtain further details about land and property and update. No-one has died..yet! Client having to sell property for personal reasons.

by **tax_schmax** on Fri Sep 09, 2011 2:52 pm

bci85

Brace yourself for some interesting technical exchanges.

If no-one has died, and no trusts are involved, no IHT would be due until the donor died. It would be potentially exempt. Nice and simple!!! If the donor dies within 7 years, the first £325,000 will be free of IHT and the taper relief will apply on the residual amount. Assuming a death between 5 and 6 years after the gift, and that the dates and values you provide hold true

£1,500,000 - £325,000 = £1,175,000.

Tax at 40% would be £1,175,000 = £470,000

Taper relief between 5 and 6 years after the gift would be a discount of 60% of the tax due

£470,000 x 60% = £282,000

Total tax due £470,000 - £282,000 = £188,000. OUCH.

The debate that will follow will probably focus upon the facts relating to the titles of the main house and grounds and the cottage. If the donor retains enjoyment of the cottage property, is the gift of the main house without reservation??? Is enjoyment of the cottage, enjoyment of the property that was gifted. If this makes the gift one with a reservation of benefit, when does the 7 year clock start ticking, if at all???

I'm going to be on the sidelines for this one.

Gentlemen. Begin!!

by **maths** on Fri Sep 09, 2011 3:34 pm

Gentlemen. Begin!!

Couldn't resist!

Having said this will await bc185's response.

Re your:

If this makes the gift one with a reservation of benefit, when does the 7 year clock start ticking, if at all???

It doesn't unless the reservation is itself subsequently released by the donor at which time the release itself is a PET and the 7 years starts ticking from that time.

I also prefer sitting on the lines; in my case, then chucking bricks; much more fun.

by **bc185** on Sun Sep 25, 2011 6:23 pm

apologies for the delay due to obtaining further details
- in 2006 clients mother was living in a house inherited from husband (this also includes land and a cottage which was inhabitable). As the house was too big the mother sold the land surrounding the cottage at market value to my client - the mother then gifted the remaining house and land to her son (client). The money paid by my client to his mother for the cottage land was used by his mother to redevelop it and she has moved into it - my client then moved into the house as his main residence.
my reading is that there is no GWR or POAT issues now that full info in but as always would welcome all comments