Would mum have to pay us rent?

[judy]

I am tearing my hair out, having spoken to a financial advisor and also having visited a solicitor and still not understanding the implications of the pre-owned assets tax.

Briefly, my mother and father severed the tenancy on their property a few years ago. My father died 22 months ago and left his half share in trust to myself and brother, with my mother having the right to reside in the property for as long as she wishes.

My mother now wishes that I, along with my husband and two children, move into the property with her. We would sell our own property. She intends to give us her remaining half share in the property, and my husband and I would like the security of ownership having given up our own property.

I have been round and round in circles asking "professionals" the best route to take to avoid unnecessary taxes, and am more confused than ever.

Both the financial advisor I spoke to and the solicitor I visited have suggested that my mother make a PET of her half share, and that if she survives 7 years no IHT will be payable.

Each time I have brought up the subject of pre-owned assets, with her retaining the benefit by remaining living in the property with us. The financial advisor told me the IR "would not be interested in cases like ours, where we would be looking after my elderly mother", and the solicitor said that "as he understands it, as the law stands, she would not need to pay rent".

I am unclear as to why I am being given (or rather paying for!) advice from professionals which seems so "at odds" with what I read in newspapers and on this site.

I thought the whole thing about a PET was that the donor could not retain any benefit from what they gave away.

Does the fact that my mother already retains the right to live in the property under my father's will change matters, i.e. she would not need to pay market rent, or IHT be payable upon her death, and is free to gift her half share?


I keep wondering whether a better way would be for us to sell our property, buy her half share rather than have her gift it to us, and then she could immediately gift back to us the proceeds. That could be a PET couldn't it? She wouldnt retain any benefit from the money itself.

I would be extremely grateful for any clarification.

[judy]

I've just realised I forgot to give any figures, which might be a helpful....

When my father died the property he owned as tenants in common with mum was valued at around £250,000. Value today around £380,000.

My parents had around £30,000 savings and little else in the way of assets when my father died, and the amount my mother now retains has changed little.

The property I own with my husband is valued at around £280,000 (£75,000 mortgage outstanding).

[funcrusherbill]

I am only an alert amateur, but I read in the FT that the chancellor's clamp down on "gift with reservations" does not apply where mum resides with her family. The point is that you will enjoy the full benefit of the home she gives you. That makes it different from her giving you the house, but staying in it on her own while you live somewhere else, hence keeping the benefit herself.

I don't know whether you have to move in before the gift is made, but it might be safer to do it that way.

hence no need for her to pay rent.

[judy]

Thanks Funcrusherbill - still confused though - I know the "update" to the "Treatment of Pre-Owned Assets" paper says something along the lines of "if a child moves in with an elderly parent to look after them and the parent gifts 50% of the property which was wholly owned by them, that would be discounted". They are not saying that a gift of the property (100%) from parent to child would be ok, even if the child has moved in to look after them.

I realise our own case is a bit more complicated, with mum only actually owning 50% as it stands. Still dont want to make a wrong move which could end up costing my family thousands.