Transferring house to grandchildren ....
Discussion
It's not really a 'business' question, but this would probably get lost in General Gassing so thought I'd post it here.
Bit of a hypothetical one really, but hoping someone can offer some basic advice.
A relative is feeling particularly unwell at the moment with chronic arthritis which has been going on for quite some time. She's not particularly old, mid 50s ish, but due to her poor health and deteriorating joints she fears that in the future (say, 10 years time) she will need full time care in a home of some description.
For reasons that I don't need to go into, her greatest fear is that the house she has lived in for the last 30 odd years would have to be sold to cover the cost of this care. She feels very strongly about this as considers the house to be hers and her sons (although his name is not on the deeds, but he is the only family she has).
She has decided (and is a strong-willed woman) that the best bet would be to sign the house over to her grandchildren asap, as she is concerned about the tax implications of signing it over to her son.
The grandchildren are aged 2 and 3.
My questions (on her behalf) are as follows ;
- is it possible to do this, bearing in mind the ages of the grandchildren
- if she signed the house over to her son, would there be a tax implication. My understanding is that he would be subject to capital gains tax if he subsequently (years down the line) sold the house, but would not be liable for any immediate tax.
- in either instance, what are the implications of her continuing to live there for the forseeable future (i have a feeling that there was a loophole closed here to avoid escaping inheritance tax)
- if she did transfer the house, would that mean that through 'means testing', due to her limited savings, she would, hypothetically, receive state help for any full time care or are the family responsible for this. And would it be completely unethical to transfer the house out of her name in order that she would get this state help ?
I know there's something like a 7 year period with regards to gifts prior to death etc., but is there anything similar (or the same) in this situation ?
Like I say, it's all a bit hypothetical at the moment, its just that she's got herself in a bit of a state and is off on a mission to sort her affairs out. I'd hate for her to do something hastily which she regrets later, or which leaves her, or anyone else, in a more difficult position.
Thanks in advance for any help at all.
P.S. Sorry if my spellings bad or I've repeated myself, but I've just drunk a pint of my husbands home brew and can hardly focus now !
Bit of a hypothetical one really, but hoping someone can offer some basic advice.
A relative is feeling particularly unwell at the moment with chronic arthritis which has been going on for quite some time. She's not particularly old, mid 50s ish, but due to her poor health and deteriorating joints she fears that in the future (say, 10 years time) she will need full time care in a home of some description.
For reasons that I don't need to go into, her greatest fear is that the house she has lived in for the last 30 odd years would have to be sold to cover the cost of this care. She feels very strongly about this as considers the house to be hers and her sons (although his name is not on the deeds, but he is the only family she has).
She has decided (and is a strong-willed woman) that the best bet would be to sign the house over to her grandchildren asap, as she is concerned about the tax implications of signing it over to her son.
The grandchildren are aged 2 and 3.
My questions (on her behalf) are as follows ;
- is it possible to do this, bearing in mind the ages of the grandchildren
- if she signed the house over to her son, would there be a tax implication. My understanding is that he would be subject to capital gains tax if he subsequently (years down the line) sold the house, but would not be liable for any immediate tax.
- in either instance, what are the implications of her continuing to live there for the forseeable future (i have a feeling that there was a loophole closed here to avoid escaping inheritance tax)
- if she did transfer the house, would that mean that through 'means testing', due to her limited savings, she would, hypothetically, receive state help for any full time care or are the family responsible for this. And would it be completely unethical to transfer the house out of her name in order that she would get this state help ?
I know there's something like a 7 year period with regards to gifts prior to death etc., but is there anything similar (or the same) in this situation ?
Like I say, it's all a bit hypothetical at the moment, its just that she's got herself in a bit of a state and is off on a mission to sort her affairs out. I'd hate for her to do something hastily which she regrets later, or which leaves her, or anyone else, in a more difficult position.
Thanks in advance for any help at all.
P.S. Sorry if my spellings bad or I've repeated myself, but I've just drunk a pint of my husbands home brew and can hardly focus now !
I suspect a Trust would be required, as the children are clearly too young to own property.
However anything that looks as though it was done to avoid IHT can be investigated - so get a good IFA who is fully boned up on inheritance tax. I can recommend one if you like, did an excellent job with my mother's stuff.
However anything that looks as though it was done to avoid IHT can be investigated - so get a good IFA who is fully boned up on inheritance tax. I can recommend one if you like, did an excellent job with my mother's stuff.
We have looked at this ourselves. The house could be transferred, but your relative would need to survive for 7 years after the transfer otherwise IHT will be payable. All trusts etc are being very carefully looked at by the IR at the moment and they are even backdating legislation to catch out people who set up tax avoidance schemes several years ago. Tread carefully and find a good accountant to advise!
I thought there was an upper limit to the value of tax-free gifts you could make under the 7-year rule, specifically to stop this kind of thing.
AFAIK, the son would be immeditately liable for CG on the current market value of the house, less any token amount he paid for it.
I think trusts are the way to go, but don't know anything about setting them up. Talk to a good IFA with experience in this area.
[rant]
The fact that "we" even need to think about this kind of financial planning is outrageous. Its bad enough that the government scams 40% of anything over £263k when you pass on, but to force you to sell your home in order to cover cost of care in your old age is frankly taking the p155. What the
do you pay NI for all your working life anyway? Ba5tards, the lot of 'em!
[/rant]
AFAIK, the son would be immeditately liable for CG on the current market value of the house, less any token amount he paid for it.
I think trusts are the way to go, but don't know anything about setting them up. Talk to a good IFA with experience in this area.
[rant]
The fact that "we" even need to think about this kind of financial planning is outrageous. Its bad enough that the government scams 40% of anything over £263k when you pass on, but to force you to sell your home in order to cover cost of care in your old age is frankly taking the p155. What the
do you pay NI for all your working life anyway? Ba5tards, the lot of 'em! [/rant]
The son would not be liable to CGT on the acquisition of the property - however the son would be deemed to have acquired the property on the date of the transfer at the market value on that date. That value would then be used as the base cost in the Capital Gains Tax computation when the property was eventually sold.
The Revenue also look very carefully at property transfers where the transferee (the parent) retains a beneficial interest in the property (i.e. - they still live there). In order to kill the "beneficial interest" point they might have to pay to the son a rent at full commercial rates. Then, of course, the son would be loiable to Income Tax on this rental income.
>> Edited by Eric Mc on Tuesday 21st September 10:35
The Revenue also look very carefully at property transfers where the transferee (the parent) retains a beneficial interest in the property (i.e. - they still live there). In order to kill the "beneficial interest" point they might have to pay to the son a rent at full commercial rates. Then, of course, the son would be loiable to Income Tax on this rental income.
>> Edited by Eric Mc on Tuesday 21st September 10:35
Thanks for all your replies. Pretty much as I thought, we need to find her a decent accountant and/or solicitor.
It's really the means-testing issue that we're looking into, ensuring that she wouldn't have to sell her house if she needed to go into care in the long term.
She's not thinking too much about inheritance tax, I'm fairly certain the value of her estate is (currently) under the threshold anyway.
Thanks again.
It's really the means-testing issue that we're looking into, ensuring that she wouldn't have to sell her house if she needed to go into care in the long term.
She's not thinking too much about inheritance tax, I'm fairly certain the value of her estate is (currently) under the threshold anyway.
Thanks again.
CGT - dont get too excited chaps. He will have 3 years in which to do anything before becoming liable for any tax. At the moment his current house will be considered his 'current residence'. If elderly rel transfers house to him, and he decides this will be his main residence, then he has 3 years in which to dispose of his existing house without paying any CGT....
Inheritance tax - if she transfers over now i Bieleve she does need to live another 7 years to be completely free.....but....only if it's gifted. Rememebr, if it is SOLD to the grandchildren then this isn't such a problem.....and you can sell for whatever you want! (dont think this avoids CGT though)
best advice is definitely to speak to an expert in this- there are many of em around and they'll definitely be able to minimise any loss.
PDV6 - couldnt agree more with your rant - absolute bast**ds!!
Inheritance tax - if she transfers over now i Bieleve she does need to live another 7 years to be completely free.....but....only if it's gifted. Rememebr, if it is SOLD to the grandchildren then this isn't such a problem.....and you can sell for whatever you want! (dont think this avoids CGT though)
best advice is definitely to speak to an expert in this- there are many of em around and they'll definitely be able to minimise any loss.
PDV6 - couldnt agree more with your rant - absolute bast**ds!!
Nightmare said:
Rememebr, if it is SOLD to the grandchildren then this isn't such a problem.....and you can sell for whatever you want! (dont think this avoids CGT though)
No - the IR takes a dim view of property sold at less than full market value and can charge CGT on the market value regardless of the actual moneies that changed hands.
Regarding gifts, I thought there was a tax-free annual limit (of the order of £7k) that attracted IHT on a sliding scale over 7 years should the giver not survive that long. Would anything over the limit attract CGT immediately?
>> Edited by pdV6 on Tuesday 21st September 12:01
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