IHT: options for passing on house to son/daughter

[SunKRay]

Hi,

I have until last month been living with my Mother in her house (for around 20 years) (currently valued ca. £340K). Last month I bought a 2-bedroom flat (£220K) nearby and intend to move into it once the renovation has been completed. I intend for the flat to be my main residence. The excursion into the property world has opened my eyes to the realm of Inheritance tax. My Mother has always intended to bequeath the house to me on her passing, but this is, I'm told not optimal. What are our options to minimise IHT?

FRom a lay point of view, can my Mother:

(1) Gift the house wholly to me and then move into my flat? If this is the case, should I move back into the house?

(2) Arrange to have the house deeds put into our joint names?

(3) Take out an insurance policy of some sort to cover the IHT?

Any advice given is eagerly awaited and would be gratefully received.

Regards,
Sun K Ray

[Nigel Lord]

Sun K Ray

You have a small window of opportunity to effect an Inheritance Tax (IHT) planning strategy that would be effective.

Whilst you are resident in your mother's home, it would be possible for her to transfer a proportion of the property to you as a Potentially Exempt Transfer (PET). This would not be possible if you were nolonger a resident as the transfer would be caught by the Gifts with Reservation Of Benefit (GROB) rules, which prevent a donor from gifting an assets and retaining a benefit (e.g. by living there at less than a commercial rent). It would be necessary for your mother to fully meet her share of the cost of maintaining the property. The gift would wholly leave her estate if she survived for 7 years.

There are Capital Gains Tax consequences, and it would be necessary to consider these as part of any planning strategy.

Turning to your specific queries:

1. This would possibly work if the timing was right. It would be necessary for your mother to move first, and to avoid a CGT charge on future disposal of the flat, you would need to transfer it into a trust in favour of your mother (with it reverting to you on her death).

2. This would work if allied to my comments above.

3. This is a simple but costly solution. You have more cost effective options available to you.

My firm specialises in this area of taxation. If you would like us to assist you further we would be delighted to do so.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk

[SunKRay]

Many thanks Nigel for your very helpful and speedy response. I shall, no doubt, be in touch to discuss and put into action the appropriate strategy.

Cheers,
Sun K ray