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IHT on a second home bought for the joint ownership of husband, wife & children

rjhfandclf
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Joined: Thu Aug 24, 2017 6:52 pm

IHT on a second home bought for the joint ownership of husband, wife & children

Postby rjhfandclf » Wed Oct 11, 2017 11:43 pm

My wife and I sold our jointly owned house a year ago in order to downsize and, at the same time, to buy a small holiday house in France. We have been unable to find a suitable new main UK home, so for the time being, we have been renting for a year. Conversely, we have now possibly found a holiday house to buy abroad.

1. If we buy the French house first, from various relevant tax points of view, would this make it our main ‘first’ house, despite continuing to live predominantly in the UK (in rented accommodation until we find a new house to buy)?

2. If my wife and I were to buy the French house with our own joint funds, but with ownership registered in the joint names of my wife, myself and our two children, in equal shares of (say) 4 x £50,000 each (although this could be entirely flexible) = total cost of £200,000, presumably the children’s shares would be considered lifetime gifts subject to the tapering seven year potential liability for UK ITH in due course?

3. If indeed that is the case, does the seven years relate to both my wife’s and my own lifetimes, or simply to the first to die? – i.e., if one spouse lives for only four years (say) and the other for over seven years, would there be any potential IHT liability – subject of course to the total value of the assets of either spouse passing to the other in normal circumstances?

Thank you.

AGoodman
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Joined: Fri May 16, 2014 3:47 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby AGoodman » Thu Oct 12, 2017 11:25 am

1. For CGT, it would be your only home and then, if you bought a new UK home, your "main residence" for CGT would be a matter of fact - so presumably the UK. If you wanted, you could elect for which should be treated as main. Beware that the French property can only qualify for UK PPR if you are tax resident or present in France for at least 90 days during the relevant tax year. For IHT residential nil rate band, your executors elect which is to be treated as the relevant home after you have died.
2. Yes
3. No, you look at each person individually. If the cash has come from a joint account then you have made a gift of £50,000 each (£100,000 in total) and if you fail to survive 7 years this £50,000 gift would be aggregated with your estate.

Bear in mind that all of this is subject to the French rules, and in particular:

1. There may be better ways to hold the property under French law - for both tax and to ensure proper succession should one of you die.
2. French inheritance tax will be payable first and then credited against any UK IHT.

rjhfandclf
Posts: 11
Joined: Thu Aug 24, 2017 6:52 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby rjhfandclf » Thu Oct 12, 2017 1:30 pm

Thank you very much, AGoodman - great clarity of advice, as always. I think you have probably sussed where I am trying to go here. Under the sometimes quaint French laws of inheritance that so favour natural children, I think I should be able to free a reasonable amount from potential IHT through a mechanism that we can also enjoy somewhat in the meantime.

1 & 2. All noted - thanks.
3. Might need to think a bit more 'constructively' about this.

Re your NB 1. An SCI might be a better route, or something else perhaps. Anyway, we will be using a French legal expert to check through the purchase process, and they can advise on best structure etc. as well; and 2. Thanks again - useful to note, but hopefully this will be small if anything with the children already owning half and inheriting another 2/3 remainder each via their allowances (if I am understanding things correctly - which is always debatable!)

maths
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Joined: Wed Aug 06, 2008 3:25 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby maths » Thu Oct 12, 2017 3:46 pm

Regarding the purchase of the French property I would suggest that it is unlikely to qualify as a sole or main residence for UK CGT purposes. As you state it is intended to be a holiday home. To qualify as a sole/main residence requires that there is occupation with some assumption of permanence, continuity, some expectation of continuity. Even spending say 90 days or more there is unlikely to satisfy this requirement if for most of the time you live, work and reside in the UK for most of the time each tax year.

rjhfandclf
Posts: 11
Joined: Thu Aug 24, 2017 6:52 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby rjhfandclf » Thu Oct 12, 2017 4:37 pm

maths wrote:Regarding the purchase of the French property I would suggest that it is unlikely to qualify as a sole or main residence for UK CGT purposes. As you state it is intended to be a holiday home. To qualify as a sole/main residence requires that there is occupation with some assumption of permanence, continuity, some expectation of continuity. Even spending say 90 days or more there is unlikely to satisfy this requirement if for most of the time you live, work and reside in the UK for most of the time each tax year.


Thanks again - all helpful, as usual. Although we will hopefully make more and more use of the place (we are both long retired!), I think in fact the French property will always be secondary. I was more worried about the order of purchase possibly affecting the new UK property's status for tax purposes. Thankfully that seems to be allayed.

AGoodman
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Joined: Fri May 16, 2014 3:47 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby AGoodman » Thu Oct 12, 2017 5:39 pm

Re-reading this, I see I actually missed out a big point.

The gift to the children will be a gift with reservation of benefit while you continue to use the French property so will remain within your estate for IHT indefinitely (the 7 year clock will start when you cease to use it).

While it contains your furniture etc, there is unlikely to be any de minimis use on this.

rjhfandclf
Posts: 11
Joined: Thu Aug 24, 2017 6:52 pm

Re: IHT on a second home bought for the joint ownership of husband, wife & children

Postby rjhfandclf » Thu Oct 12, 2017 6:11 pm

AGoodman wrote:
The gift to the children will be a gift with reservation of benefit while you continue to use the French property so will remain within your estate for IHT indefinitely (the 7 year clock will start when you cease to use it).

While it contains your furniture etc, there is unlikely to be any de minimis use on this.


Yes - fully noted; however, I also failed to express my proposal properly. I meant to say that I would make gifts in cash to both children in the UK, and that we would then buy the property jointly between us, so everything would be jointly owned, including furniture etc. If the property we are presently considering goes through, there will also be a significant amount of extra work needed, so the costs of that need to be considered as well.

But perhaps this is getting too messy? An SCI is an alternative, but seems a bit over-the-top for our purposes, and I haven't looked at the issues in detail, so would need to take more advice.


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