A new client has been discussing his IHT position with me. He lives with his daughter, rent free, in her home in Dorset. My client has no share of ownership. He moved into the daughter's home in March/April 2007 on selling his own home in Sheffield.
The daughter's home was purchased in August 2006 for £525,000 and it has now come to light that on the same date my client made a gift to his daughter of £300,000. I understand that some of the sum gifted may have been used to carry out some modifications at the home to suit my client who is elderly, however if necessary I will need to obtain more details in this respect.
I am concerned that as my client is living in a property part-funded by his gift that he will fall foul of the POAT regime.
His estate is currently worth £1.3m so having the gift fall back into the estate for IHT would be a disaster. If POAT is applicable, am I now able to go back and amend tax returns for the preceding years to include the annual charge to income tax ? This is of course something which will need to be calculated.
In this respect, I understand that there is no income tax charge if the benefit was not more than £5,000 per annum.
Any thoughts and assistance would be very gratefully received
Replies (3)
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Exemptions
There is an exemption to the POAT if there is a gift of a part share of an interest in land which the donor and donee both occupy, provided both parties share the living expenses in proportion to their ownership.
Although you say father lives there rent free, I would be surprised if he did not contribute something towards the household expenses.
Provided he pays at least enough to cover his living expenses then the POAT will not apply.
Take a look at this. Although it talks about RoB, the rules apply also to POAT
http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm14360.htm
It would be wise to have some sort of record of how much he contributes.