IHT and moving house

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Hello there,

I live with my wife and parents in a single household which my one of my parents owns entirely, mortgage free. We are now considering moving to another, larger house together.
My parents estate includes, along with this house, another house which they jointly own and rent out, and some cash. In total, as a guestimate, the estate's total value amounts to £1.7 - 2m.

My parents are both in their early 70s and we are thinking about planning for IHT. So far they are planning on gifting me their second property along with the rental income which should reduce their estate to closer to £1m.

My question is really about the process of moving to another, larger property together. We are looking at properties in the region of £1-1.3m. The purchase would be financed, in the main, by contributions from my parents' cash, the sale of the current main residence and my wife and I taking a joint mortgage. What would be the most sensible way to purchase the property and divide the ownership with IHT in mind?

My thanks in advance for any advice given and to you for reading this far

[Samson22]

Lucky you. .
A word of warning the rental property being gifted to you will trigger cut on any increase since purchase despite no monies exchanged.

Plus if the main residence is owned over 50 percent by you it will be a gift with reservation for inheritance tax even if legally not

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Ha, thanks Samson. Yes lucky indeed.

Thanks for your thoughts.

In terms of the first I'm afraid i didn't quite understand what would be triggered. Is this something to do with the increase in value since purchase?
And as far as the house purchase goes, as long as my parents own over 50%, then it wouldn't be considered a gift with reservation of benefit? Does the amount they contribute to the purchase come under the rules of the gifts with reservation of benefit?

[Samson22]

My apologies. Cut was suppose to be cgt but auto correct . So yes any increase since purchase.


No gift of reservation does not apply but the little known own pre owned asset tax will (invented to get at your scenatio) but many don't realise to ill after the fact a day hm back dates it.

Just an idea but they could gift you as little as 1% of the rental property and via a declaration of trust could be entitled to the rental income dissaptorionate to the percent owned ( even up to 99 percent ) and quite legal. The rental income would save a bit over the years.

[Samson22]

Also a word of advise I would suggest you look for lenders to meet the liability for the tax. Because u ie bank accounts which you can use to pay the tax property is different.
Eg they are frozen and first have to borrow to pay the tax before probate is granted for then you 'inherit ' them to then sell to pay back the lenders. And this is suppose to be done within 6 months. Can be done in yearly over 10 years but the interest especially for you would add up.

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Lots to think about!

Thanks Samson

[Samson22]

No problem.

I would suggest best economically thing to do would be is they 'gift ' you almost half the main residence ( that would not trigger a cgt charge )and as you live there any increase would not be liable to cgt. You would have to contribute to the bills if memory serves. Pitfall should you get divorced it would be part of settlement.

Also life insurance unless written in trust is liable to inheritance tax which is not always highlighted and I think given age would be counterintuitive.

[Bill31]

The best thing to do is first of all don't take any cash of your parents for the sale of the main residence to buy the new house or a share of it. Keep your money separate else you could trigger a POAT charge. Also any gift your parents made to you within 7 years don't use that money either to purchase the house. If a gift has been made of cash, you can restructure it as a loan and pay them back to avoid a poat also.

Your other options is contribute towards the purchase with your own cash and yr parents with their own cash.
B option is to have your parents gift you a share in the property say 50/50. You can own as tenants in common or joint tenants. Parents need to pay all the bills or a 50% share of the bills to avoid a gwr. Also you can't move out else it will become a gwr once gifted. Also you need to outlive yr parents to avoid a gwr.

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Thanks Bill,

Yes our thinking is that my parents would contribute to the purchase as would my wife and I, and we would all maintain shares, rather than money being gifted to me solely. Am I correct in thinking the GWR and POAT in this circumstance aren't covered by the 7 year rule?

[Bill31]

If you contribute yr own cash and same with yr parents towards a purchase of joint property there is no worry of gwr or poat. You can hold as joint tenants or tic. Depending on how you want the property to pass on death.

Also another point if your parents gifted u cash if u waited 7 years before you used that cash to purchase a house with them then there is no poat. Before the 7 years of gift of cash poat can apply.
So let's say ur parents In 2020 gift u 200k cash.if you waited 7 years and In 2028 used that money to buy a property jointly with them, no poat can apply as it was after 7yrs of the original gift and the purchase of the property. If you used their money to purchase the property with them say in 2025 poat can apply as its within 7 yrs.