Inheriting property

[JapanRed]

Hi, this is tricky but I'll explain the situation

My partners mum is thinking of gifting her house to her two daughters. We are aware of the need to live 7 years after the transfer and the need for the parent to pay rent etc.

The (potential) issue arises because my partners sister and her husband are currently renting (they don't own a property). They are looking but they are specific in what they want so it could be a year or two before they finally buy. Will owning the rental property (the one that her mum lives in) have an effect on stamp duty or anything else when they come to buy?

Also, will the two sisters owning a property together (no mortgage) link them financially in terms of credit scoring etc?

Many thanks.

[Jockman]

If she will own more than 1 property she will pay the Enhanced Rate of Stamp Duty.

[JapanRed]

Jockman said:

If she will own more than 1 property she will pay the Enhanced Rate of Stamp Duty.

Thanks for your reply. I thought you only paid enhanced SD on rental properties? When she buys her house she will live in it.

[Ginge R]

Japan,

This may or may not apply, but if she's doing it to avoid IHT, bear in mind that from next year a slowly increasing and additional residence nil rate band will apply.

https://www.gov.uk/guidance/inheritance-tax-reside...

[JapanRed]

Thanks Ginge. I'be already been on the HMRC website and don't understand it unfortunately.
The mothers home (and assets) are probably under £250k. Will any IHT be due if she gives half to each daughter or transfers the house into their names?

[Jockman]

JapanRed said:

Jockman said:

If she will own more than 1 property she will pay the Enhanced Rate of Stamp Duty.

Thanks for your reply. I thought you only paid enhanced SD on rental properties? When she buys her house she will live in it.

The Enhanced Rate is due on ownership of 2nd properties, regardless of the rental status. Useful diagram.

[Ginge R]

JapanRed said:

Thanks Ginge. I'be already been on the HMRC website and don't understand it unfortunately.
The mothers home (and assets) are probably under £250k. Will any IHT be due if she gives half to each daughter or transfers the house into their names?

The individual allowance is £325,000, why is she gifting it? That's just an out aloud thought. If she wants to transfer ownership to avoid care costs (there may be something in the circumstances I am unaware of), then a council could attack the gifting on the basis of it being deliberate deprivation. An owner gifting a house is a nuclear option, so much can go wrong. I've only got a scintilla of insight so it's impossible to say with any sense of certainty, but in principle, I'd strongly advise against it.

Forget best intentions, let's be brutally objective, in a worse case scenario, the mother could be evicted by the daughter. Also, if the gift takes the house away from the mum, and one of the sisters dies, what happens to that half? It could fall to someone who forces a sale. I'm a cynic - if something can go wrong, it will. And whilst it's impossible to say, this would be one of the red lines I (as an adviser to your mum for instance) could not countenance.

Take proper, personal counsel for this, visit CAB for instance, where the full facts can be divulged.

[JapanRed]

Jockman - very helpful diagram, thank you.

Ginge - I'm not sure why she's gifting it to be honest. im not sure she knows the ins and outs of inheritance tax etc. She's going to get proper advice in due course, I just thought I'd ask the question on here first. Sounds like she would be better off just leaving the house in her will.

[Ginge R]

Good stuff. In principle, and based on limited access to the facts, I'd suggest that's probably the wisest position to start out from.