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Where Taxpayers and Advisers Meet

Gift in possession - Tax planning

Newhere
Posts: 39
Joined: Sun May 10, 2009 7:53 pm

Gift in possession - Tax planning

Postby Newhere » Tue May 07, 2019 5:05 pm

Hello all
I am helping my uncle who asked me to refer her.
He is 70 and has two children over over 40s from his deceased wife and both are singles.
Uncle married again few year ago and now want to move to London near the children.

His current house has received offer of 450k.
He wants to buy the new house costing about 600k on one of his child name.
And live there with his wife till their deaths and the house is ultimately transferred to the child.
He is in good health and looks like will survive another 7 years :)
Other child will get cash amounts instead.
What kind of trust will be suitable and another ways to consider avoid paying any unnecessary death tax.

regards

AGoodman
Posts: 827
Joined: Fri May 16, 2014 3:47 pm

Re: Gift in possession - Tax planning

Postby AGoodman » Wed May 08, 2019 10:44 am

This is almost certainly a bad idea.

He can't put more than £325,000 into trust without paying 20% tax on the excess.
If he puts the property into a child's name, the child will own the property and can sell at any time - including following his death while widow is still living there. He cannot give his wife a right to occupy after his death.
From a tax perspective it will almost certainly remain in his estate and so subject to inheritance tax but on his death there will be no capital gains uplift. He still pays the IHT but the child has to pay CGT on sale.

Newhere
Posts: 39
Joined: Sun May 10, 2009 7:53 pm

Re: Gift in possession - Tax planning

Postby Newhere » Wed May 08, 2019 10:37 pm

Thanks for your reply.
What could be the best tax planning to achieve this.
i.e. The child either pay say 100,000 to ask the step mom to vacate the property or wait till her death.
The idea is for the child to get the house but also wife has a place to live till her death and decrease the IHT taxes. CGT is obviously to be paid by the child.

Thanks

AGoodman
Posts: 827
Joined: Fri May 16, 2014 3:47 pm

Re: Gift in possession - Tax planning

Postby AGoodman » Thu May 09, 2019 10:18 am

He can't do much to save IHT on the family home other than via will planning which may or not work (it depends on who dies first etc).

ie. He could leave his widow a life interest in the house after his death so that it is exempt from IHT on his death and then the executors would have an overriding power to cancel that interest in favour of his son. It may be possible to give son an option to buy it for £100k but somebody will need to check whether that puts the IHT exemption at risk.

This does at least bring the benefit of the double residential nil rate band - ie a further £350k of tax free transfer.


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