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Where Taxpayers and Advisers Meet

Gifting house and inheritance tax

mp2016
Posts:20
Joined:Sat Jan 02, 2016 1:14 pm
Gifting house and inheritance tax

Postby mp2016 » Wed May 22, 2024 9:02 am

Hello

Can anyone advise please.

My friend if 55 and she has always lived with her parents, the latter years she has been caring for her parents, whilst still working.

They would like to leave her the house (circa 500k), and avoid inheritance tax if possible.

Does the 7 year rule apply if she and they both live or are property until both parents die? And she will remain living there once they die.

What other considerations does she need to be aware of?

Thanks in advance.

Jholm
Posts:386
Joined:Mon Mar 11, 2019 4:22 pm

Re: Gifting house and inheritance tax

Postby Jholm » Wed May 22, 2024 9:46 am

Unlikely to be any IHT, on either death due to transferable nil rate bands (potentially up to 650k - 325k x 2) and residence nil rate band, potentially up to an additional 350k.

Sounds like both would be available, subject to no lifetime gifts being made for the nil rate band.

mp2016
Posts:20
Joined:Sat Jan 02, 2016 1:14 pm

Re: Gifting house and inheritance tax

Postby mp2016 » Wed May 22, 2024 9:53 am

Hello

Thank you for taking the time, is there any chance you could explain further as I'm a lay person trying to help out a friend ?

Does it matter that she currently lives there and will continue once both parents have passed away?

Thanks

Jholm
Posts:386
Joined:Mon Mar 11, 2019 4:22 pm

Re: Gifting house and inheritance tax

Postby Jholm » Wed May 22, 2024 12:55 pm

For IHT purposes, there is a 'nil rate band' (NRB) of £325k per person. When someone dies, they can pass assets down the family and there is no IHT if the value transferred is less than £325k. If one spouse dies and the surviving spouse is left everything, then the survivor can uplift their NRB by the percentage unused on the first death (so up to £650k max NRB.

There is an additional 'residence nil rate band' of £175k per person, which is available when the family home is passed down to lineal descendants. Again this is transferable from one spouse on death, so again, max RNRB can be up to £350k.

The total of these available bands can be up to £1m. This might be reduced if their have been any lifetime gifts to either a trust (or individual where the donee does not survive 7y). On the assumption this is not applicable, it seems they could transfer the property on the death of the second parent without any exposure to IHT.

It doesn't matter that she lives there. It would matter if they transferred the property during their lifetimes, as you would need to consider whether the gifts with reservation of benefit rules apply (https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm14332). However, the property being included within their estate might not be a problem as it may well fall under the available bands as mentioned above.

The above assumes no other assets but again, the total value of assets seems like it would need to be over £1m. before IHT due.


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