Gift with reservation

[pgoddard]

5 years ago, my father having consulted his solicitors arranged to transfer his property into my name, and continued to live there, paying no rent until he moved into residential care. I rented the property out for 2 years to provide an income to help pay for care home fees (paying tax on income). The house remained empty for over 18 months up to his death in January and I am now selling the property. Would the transfer from my father to myself be ineffective for Inheritance Tax (IHT) purposes, as my father had retained a benefit by living there and not paying rent? My understanding of the situation is that he would have fallen foul of the Gifts with Reservation Of Benefit (GROB) rules and the whole value of the property would remain within his estate irrespective of how long he survived.
Effectively from the taxman’s point of view, the transfer never happened, and should I have an IHT bill to pay, if this makes the value of my father’s estate over the IHT limit of £260,000+. My fathers will has already been to probate and the balance of his assets has been dispersed.
IÂ’d be very grateful for any advice. Thank you in anticipation.

[robertmlaws]

If I understand this situation correctly the transfer will be ineffective for IHT purposes but will be effective, unfortunately, for CGT purposes.

Not only will you have an IHT bill based on the value at the time of his death (the probate value) but you will also face a captial gains tax bill which will use the value at the time he transferred it to you (not the probate value) as the basis.

This is my understanding but I ask others to comment and correct me if I am wrong.


Robert
not a lawyer

[Craig P]

I agree with Robert.

We're assuming of course that you haven't lived in the property yourself since the transfer.

It's probably worth mentioning that if you delayed selling and used the property as your own main residence for a period, you may benefit from both PPR and letting relief, which may leave you with no CGT charge. If this isn't practical there may be other options. In your shoes I'd at least take some professional advice.

Craig
ditto