Inheritance Tax when you move into home with donor

[alisoninthesky]

Hoping someone can help here.

In Feb 2021 my parents gifted me their home. The have continued to live in the property since, rent free. They have life rent on the title deeds.

I own my own home (purchased Aug 2020).

This year I am paying for an extention to my parents home (a conversion of an existing ATTACHED outbuilding into additional living space). Once this has been completed and signed off by building control, I will be selling my home and moving into the house with my parents.

I own the property 100%, however we will share all the bills and upkeep costs between myself and my parents. The are and will not pay any rent to live there.

As I will be living in the property as my main and only residence, and everyone contributes to bills, will this still be deemed as part of my parents estate for IHT?

Does the extention increase the value of the property for IHT purposes, even though I will pay for it myself? Or can this be excluded from the valuation?

[AGoodman]

I'm afraid it remains part of their estate for IHT.

There are some provisions which can apply if your parents give you a share of the house but nothing relevant if they have given you the whole thing.

I'm not familiar with life rents (presumably this is Scotland) but, assuming it gives them the right to live there, that would be another reason for them reserving a benefit. At the moment they are caught by two facets of the reservation of benefit rules:

- a legal right to occupy
- actual occupation

Afraid I'm unsure about the increase in value due to works. You might argue that it carves out some separate value not covered by the reservation but that isn't obvious from a technical standpoint - particularly if their life rent would include the extension. You may want to get some proper advice.