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Where Taxpayers and Advisers Meet

IHT – any difference in gifting one property or bits of two

Joined:Tue May 04, 2021 6:58 pm
IHT – any difference in gifting one property or bits of two

Postby Kier » Sun May 09, 2021 7:45 pm

My 84yr old mother has two residential properties with a total value of approx—£ 1.4m. My father passed away intestate. Both properties passed directly to her. Applying joint RNRB £350,000 and joint NRB £750,000, it leaves £400,000 on which 40% IHT applies - £160,000 due to the tax authorities.
One property is empty, the other rented. My mother lives with me and has done so for a couple of years. I think she should gift the empty house (both of equal value) to one of her children now, for application of the seven year.

My brother believes RNB/IHT could change tomorrow and disagrees. He thinks she should transfer a percentage of each house up to a joint value greater than £400,000 to her children now. So, when sadly she passes, we will already be stakeholders, and RNRB and NRB will apply to her estate, the percentages held in both houses passed to us in her will.

Legal fees overall aside are both options the same – i.e. £400.000 – IHT due £160,000 reduced after three years. I fear I am missing something in my brother’s alternative that would have me say no.
Appreciative of any comments.
Thank you

Joined:Fri May 16, 2014 3:47 pm

Re: IHT – any difference in gifting one property or bits of two

Postby AGoodman » Wed May 12, 2021 11:09 am

I don't understand where your brother is coming from or what he is trying to achieve.

incidentally, I have not heard anything about changes to the RNRB, it's complicated enough already.

Joined:Wed Aug 06, 2008 3:25 pm

Re: IHT – any difference in gifting one property or bits of two

Postby maths » Wed May 12, 2021 6:25 pm

Presumably brother is trying to pass sufficient % in each property with an aggregate value of £400,000. This would then mean on mother's death her estate will be valued at £1m against which RNRBs of £350k plus NRBs of £650k will reduce IHT to nil assuming mother survives 7 years post gifts.

If, however, mother dies within 7 years then the PETs of £400k will become chargeable [however, NRBs of 650k would preclude the IHT charge from arising on the PETs] but this would mean only 250k of the aggregate NRBs remains for offset against mother's estate plus the RNRBs of 350k which gives IHT charge on death of 40% of 400k ie 160k. Hence no IHT saving arises.

Depending upon the facts it may be that neither of the properties qualifies on mother's death for RNRBs?

Joined:Tue May 04, 2021 6:58 pm

Re: IHT – any difference in gifting one property or bits of two

Postby Kier » Thu May 13, 2021 11:27 pm

Thank you for your responses
AGoodman -
My mother and father lived in the first property for numerous years. With the purchase of a second house, my father moved into it and lived there. They were still married; they just chose to live in different properties. The two properties were in both names.
I cannot think of a reason why the properties would not qualify for RNRBs. I don't know how far back her paperwork goes.

I've tried thinking about different possible negatives, for example, worried that gifting shares in her properties would leave her a tenant in common with her children. That it might reduce the total R/NRB available to her estate if her estate is reduced, but decided the total double R/NRB remains the same regardless of whether or not her estate is reduced, as she would still have retained ownership in the residential properties.

maths -
Regarding my brother's intentions for wanting my mother to gift parts of both properties to a child, I'd forgotten that he gave my father money towards purchasing the second house and spent lots of time refurbishing the property. Something that our other sibling didn't do. So, I think it is a case of I'll have a stake in the estate now. As for the retained non-gifted elements of both properties, he thinks our mother can pass on them on her own behalf and how she believes our father would have wanted her to do for their children. I suppose after the initial gifting of part of the properties, in her will, it's a clean slate, and the remainder is willed to us all in equal proportions.
Oh gosh, how we make our lives so complicated! instead of just living.

Once again thanks
Ps. not sure how my query ended up under the Stamp Duty Index :-)

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