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IHT position if Parent gives house to Carer Daughter?

My mother, who requires 24-hour care, wishes to give her house to my sister.  My sister, aged 58, is registered disabled herself but has for the last three years plus, managed to do a sterling job of care, helped not least by the fact that until recently, she was a senior nurse.  This has saved a fortune in care home fees, previously running in excess of £40,000 p.a.  It is clear that without my sister's support, my mother's limited quality of life would be even more grim.

After the gift, my mother would be required to pay my sister rent.  As mother is doubly incontinent and occupies and uses only one room at all times, save for occasional use of the toilet outside her room, it is intended to charge £4,250 p.a., which my sister will claim under the Rent-a-Room provisions.

My sister has asked me to find out what is the IHT position.  She has been advised that there is a tax break by virtue of her being my mother's carer.

Comments as to the viability of the gift from an IHT standpoint would be appreciated.

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By dantolu
23rd Apr 2012 10:29

IHT

The gift to family members (in this case of the house) is classify as lifetime gift under IHT and there is no IHT tax payment once the donor is still alive.

If the Donor (mother) dies within 7 years of the gift, then IHT will be chargeable depending on the length she lives within 7 years of the gift.

The fact that the daughter is carer as well, the donor (mother) do not have to pay rent and she can live in the house rent free but since the rent is £4,250 then the donee (daughter) is exempt fiom income tax. 

If the she is not carer, then Donor will be required to pay rent at current market value.

I hope this help.

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By LyneT
23rd Apr 2012 10:34

Normally when an individual gifts an asset (in this case the house) to someone else, and continues to enjoy the benefit of the asset (in this case living in the house) then this is known as a gift with reservation of benefit and is ineffective for IHT.

Provided mum pays full market value rent for the asset then the gift is effective for IHT.  Sister would however be liable for income tax on the rent she receives.

You need to check whether the figure your sister will charge mum for rent is full market value.  If not, the gift will effectively be disregarded for IHT.

I think you may be getting rules for IHT mixed up with rules for charging for residential care.  If you are thinking about the possibility of mum having to go into residential care, then the value of the house wil be disregarded if your sister continues to live there and she is disabled.  I am not sure whether or not you think this will apply.

If mum gifts away a share of the property ie makes your sister joint owner of the property, and continues to live there, then this is not a gift with reservation, provided mum pays at least her share of the outgoings.  However, if she does this, when she dies her share of the property would form part of her estate.  She could therefore gift the share of the house that would reduce her estate to below the nil rate band.

Sorry if this is rather comlex, but the transaction you are intending to make is complicated and you really need advice you pay for.

 

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By LyneT
23rd Apr 2012 10:41

Lawco,

I am sorry if I appeared patronising about the rules being complex.  I have just realised that you are an accountant and are probably used to reading legislation.

Here is a link to HMRC site about  gifts with reservation and jointly owned assets.  If I were you I would go down this route rather than an outright gift of the whole of the property.

http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm14360.htm 

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