Granny Flat / IHT

[anonymous-user]

Hi all

A friend has a house worth 500k
Elderly Mother has house also 500k
Father passed away 15 years ago, his IHT not used if that makes a difference

So, what if the mother sold her house & gives 250k to son 1 to buy a bigger house with annexe, in his name & she then lives out her days there.
Gives same in cash to daughter
Loads of savings & pensions to live off ..
No other children

Do the son & daughter pay tax on all or some of the 250k ?

Or am I right in believing that they would pay tax if the person died within 7 years (but their IHT threshold is 650K due to mother & fathers allowance) so there is none to pay anyway?

Edited by anonymous-user on Thursday 19th February 17:41

[Eric Mc]

No tax unless she dies within 7 years. Although be careful of the "Gift with reservation of title" rules.

[STattam]

Correct, mum has 650k allowance based on what you say. Gift from her to children would be best to discretionary trust, well up to 325k of it to avoid it adding to children's estate for iht purposes but allows interest free loans to them with their children taking their share on death ( I.e grandchildren). Hope that helps.

[Claudia Skies]

Eric Mc said:

be careful of the "Gift with reservation of title" rules.

Exactly.

Essentially if you give someone your house but continue to live in it yourself, you need to pay them a market rent for living there.

[anonymous-user]

But they have not given son their house. They are considering selling the house & giving son half of the proceeds to buy a bigger house & to live there in attached annexe. So that would just be subject to IHT if they keeled over wirhin 7 years? (650k so not an issue)

[Eric Mc]

The "gift" seems to have strings attached - which is a less technical description of "reservation of title".

[Alpinestars]

The owner could charge granny rent, which could be part of the amounts she wants to give to him. He could structure it in a way that gives him "rent a room relief", so he pays no income tax. Because it's not a gift, there would be no IHT. And whilst you'd have to run the numbers, it shouldn't affect his CGT position if letting relief is sufficient to cover the gain on the let part of the house.

[Claudia Skies]

Alpinestars said:

The owner could charge granny rent, which could be part of the amounts she wants to give to him. He could structure it in a way that gives him "rent a room relief", so he pays no income tax. Because it's not a gift, there would be no IHT. And whilst you'd have to run the numbers, it shouldn't affect his CGT position if letting relief is sufficient to cover the gain on the let part of the house.

Yes, it all comes back to charging rent as per my very simple example above. The key thing is that you must be able to prove that it is a "market rent". IIRC the rent-a-room relief is capped off at a pretty low level. I think it's £4,250 a year, and it would be a good trick to find a £250,000 property which could be rented for £82 a week.

[Tiggsy]

Assuming iht is an issue.....here's cash, give me cheap lodgings is a gift with obvious reservation

[Alpinestars]

Claudia Skies said:

Yes, it all comes back to charging rent as per my very simple example above. The key thing is that you must be able to prove that it is a "market rent". IIRC the rent-a-room relief is capped off at a pretty low level. I think it's £4,250 a year, and it would be a good trick to find a £250,000 property which could be rented for £82 a week.

Yes and the clue is the "rent a ROOM" bit.

£4.250 is the tax-free limit regardless of whether the market rent for the ROOM is more.