This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Buying parents house and declaration of trust

simplytax
Posts:86
Joined:Wed Aug 06, 2008 3:34 pm
Buying parents house and declaration of trust

Postby simplytax » Sat Jan 16, 2010 8:44 pm

What tax issues are there if purchase parents house and pay market value ( less than nil rate band )then make declaration of trust that they can live in it rent free whilst they are alive ?

No gift with reservation for IHT if MV paid.

Any implication for Pre-owned asset tax if parents continue to live in house rent free ?

If declaration of trust made then when house sold following parents death main residence relief may exempt gain by virtue of parents occupation ?

At present title was taken with simply a minute of agreement that parents could occupy rent free and parents would meet upkeep costs of property. Can declaration of trust be made now and what other implications might that have, or used for subsequent planning ?

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: Buying parents house and declaration of trust

Postby Peter D » Sat Jan 16, 2010 8:54 pm

You will have to explain this " What tax issues are there if purchase parents house and pay market value ( less than nil rate band )" first. Regards Peter

simplytax
Posts:86
Joined:Wed Aug 06, 2008 3:34 pm

Re: Buying parents house and declaration of trust

Postby simplytax » Sat Jan 16, 2010 9:10 pm

To clarify. Son acquires title to his parents house and pays then the market value and minute of agreement drawn up that parents will continue to live in it rent free and will meet maintenance costs.

Now considering drawing up a Declaration Of Trust to this effect to hopefully strengthen claim for main residence relief when house sold when parents die.

The fact that son paid parents MV and this was less than NRB limit does this avoid any tax problems re IHT, POAT or discretionary trust tax regime ?

AvocadoK
Posts:1232
Joined:Wed Aug 06, 2008 3:46 pm
Location:Lancashire

Re: Buying parents house and declaration of trust

Postby AvocadoK » Sat Jan 16, 2010 9:50 pm

Some thoughts...

Presumably the purpose of the planning is to freeze the value of the estate to the extent that it consists of the house (the house being replaced by cash from son).

As there is no gift here, there wouldn't be a problem with GWR. I think there is a POAT problem though. It would seem that it is not an 'excluded transaction' : although full value is paid, the 'excluded transaction' let out requires parents to dispose of his 'whole' interest (para 10 sch 15 FA 04), or to expressly reserve an interest (which would then have a value in their estate).

What if son predeceases parents? Does spouse inherit house and is that a good idea? If she doesn't, there may be IHT re parent's house.

Need to be careful with the main residence exemption for CGT. If parents occupy under terms of a trust (settled by son) the main residence exemption would be available, so the wording of the declaration of trust needs to have that condition in mind.

AK

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: Buying parents house and declaration of trust

Postby Peter D » Sun Jan 17, 2010 10:18 am

What is the value of the estate, and what professional advice have you taken on this issue. Regards Peter


Return to “Capital Gains Tax, CGT”