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Gifting Rental Property but wish to retain income

Gifting a rental property to family but wanting to retain the income from it, is it possible ?

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If you gift a house to the family, which is rented, but still wish to keep the income from it, is this possible or does the income then go to the family and no way round it ?  I realise she may be subject to capital gains tax on the gift as it will be taken at the value at the tiome of gift.  She is a pensioner with a small pension only and relies on the income from the property.  Thanks

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By DJKL
24th Nov 2016 11:56

Is IHT or care home fees the impetus for her considering depriving herself of her main income earning asset, or is it just greedy offspring?

It is surprising how often these sorts of suggestions/ideas come from potential beneficiaries rather than the party doing the giving, who may be being pressured by family to give up the asset.

IMHO where she depends on the asset/ income to live any such arrangements are very dangerous, there are a lot of unknown unknowns in the future; offspring divorce, are rash with funds etc.

Entrusting one's asset/income to them, even if it can be arranged in a tax efficient manner, should never overlook the real risks in such arrangements just to save the kids from having to spend their future inheritance on IHT or care home fees.

Maybe all is innocent here but as I have sat more than once at a dining table on a Sunday listening to other family members advise their elderly parent to part with x or y forgive my scepticism.

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to DJKL
24th Nov 2016 16:30

That would no doubt have put you off your lunch.

As I read the query, the request came from the owner's advisers.

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24th Nov 2016 12:06

Long time since I retired, but are there not inheritance tax consequences of reservation of benefit?

And if the donor is elderly, and needs to go into care, is she still treated as still owning the property when assessing her contribution for her care costs to the local authority on the grounds she is deliberately dissipating her estate?

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By 356B
24th Nov 2016 12:21

The income goes to the owner(s), in this case the family members, in whatever proportion they agree. They could gift the income to her (after paying tax on it).

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to 356B
24th Nov 2016 16:34

356B wrote:

The income goes to the owner(s), in this case the family members, in whatever proportion they agree. They could gift the income to her (after paying tax on it).


This is b*llocks. All of the income can go to (and be taxed on) the donor, if required, but there is either a settlor-interested IIP or a GWROB (both of which have the same effect for IHT purposes). If it is a GWROB there is a gain on market value.

In either situation the care home fees "worry" is not averted.

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to Portia Nina Levin
24th Nov 2016 16:46

I think somewhere the querist said IHT wasn't an issue, presumably because of IHT thresholds.

Why is the care home worry not averted? If the client went into care fairly soon on, then of course she has deprived herself of the asset. But if she was in good physical and mental health when she made the gift, is there a period beyond which it is not included in the donor's estate?

Settlor retains an interest, consequently she is taxed on the rent.

Suppose the settlor has at some time lived in the property and it has been her PPR. This will minimise her cgt. and suppose, for whatever reason, she should at some future date , decide to return to the property? What would be the effect on her income tax then, or on her care home position?

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By 356B
to Portia Nina Levin
24th Nov 2016 17:14

So my original statement stands.

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By stratty
24th Nov 2016 14:58

Is that what they call having your cake and eating it?

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to stratty
24th Nov 2016 16:35

Or avoidance.

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By jmleeco
24th Nov 2016 15:04

Thanks for all your answers. It is the possibility of care home fees in the future that is worrying her, but I feel there is no way round it as the family will not want to pay tax on the income before handing it over to her so I must warn her accordingly and also that the Council can look at the gift in the future. Inheritance tax is not the problem, she is just trying to protect her asset for the children.

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to jmleeco
24th Nov 2016 16:33

Over what period of time would the council consider her to have deprived herself of the asset?

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to jmleeco
24th Nov 2016 17:00

to jmleeco:
See Portia's nicely worded reply above. I'm sure a settlor who retains an interest is taxed on the income.

It's a long time since I retired, so I could be wrong.

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24th Nov 2016 16:03

So she doesn't want to pay care home fees. Her children don't want to pay care home fees (why not? don't they love her? have they offered to look after her themselves?). They all want the rest of us to pay care home fees that she can well afford.

Sorry, but I get cross about his sort of middle class tax evasion...

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to WhichTyler
24th Nov 2016 16:40

Even if she is/they are successful at getting around the care home issue, she ends up in a crap care home, rather than the care home she could have enjoyed if she retained her wealth.

You cannot take it with you.

I am however in favour of euthanasia in these circumstances.

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to Portia Nina Levin
24th Nov 2016 17:35

I assume you mean killing off whoever came up with the scheme?

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to Portia Nina Levin
24th Nov 2016 18:36

"I am however in favour of euthanasia in these circumstances."

Cui bono?

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to WhichTyler
24th Nov 2016 16:51

Avoidance, not evasion!

If she is in care it may well be because she needs more care than an unqualified individual can provide. It might be her own idea.

and what happened to the Government's promise to increase the disregard form £23250, or whatever it is?

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24th Nov 2016 16:58

A review of the thread makes it clear that the querist is concerned about care home fees and IHT is not an issue.

Do we have any readers who have dealt with this situation in practice?

and am I right in thinking the present situation arose because a government in the 90's was concerned about the number of ancients blocking the free NHS beds in hospitals, thus giving rise to a lucrative industry?

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25th Nov 2016 09:10

Many old people are too bitter to pay care home fees and would rather the state pay for it.

I agree that people should pay for a nice care home to live in - but if the only asset someone has is a small house, it may not pay for care for long in their care home of choice - so they could end up getting bundled into a crap one at some point anyway (not that this appears to be the case here).

The elderly - they should be drowned at birth.

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to TheLambtonWorm
01st Dec 2016 11:22

I suppose the comment about elderly people being drowned at birth was meant to be ironic.

The elderly are themselves part of the state, paid NI all their working lives, and if they are no longer paying income tax they still pay VAT, IPT, SDLT, excise duty as much as anyone else. There is no logic in the state refusing to pay for their care , when it pays their state pension, prescriptions, hospital care and GP services. Age is partially incapacitating , hence the exclusion from hospital care but the inability to live alone at home.

There is a case for a contribution, as there i for prescriptions and could be for GP provision but the all-or-nothing basis of care home provision is distinctly unfair.
I had a heart bypass about 2 years ago. It cost you £49,000, according to the american insurance equivalent. This is probably more than the NI I paid in my working life. On the basis of your argument, it should have cost my wife and children £49,000.
Other commenters have raised the point that the young should take care of their old parents themselves. This is not always possible, they may lack the necessary skill or strength, or there may not even be any relatives young enough to care for them.
Having said all that, this is in fact a professional website, and not a political forum.

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to Ken of Chester le Street
01st Dec 2016 11:52

I think you have misunderstood my post.

My opinion is that a wealthy hypothetical elderly person should choose to use their big pile of money to pay for a nice care home, rather than give it all away to their children, only to be then placed into a not-so-nice state funded care home.

And yes, the comment on elderly people being drowned at birth was clearly a joke - as it's not really possible to give birth to an elderly person.

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01st Dec 2016 13:54

I'm glad I misunderstood your post.

Be blessed!

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