IHT. Transfer of Property to daughter. PET

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I have a client with seven acres of land on which are two properties, a main residence and a small letting unit.

It is hoped that the main residence and six acres of land be gifted to my clients daughter and son-in-law.

The smaller letting unit and one acre of land will remain in the ownership of my client.

The proposal is that the main residence be demolished and a new substantial residence be built, paid for by the daughter and her husband.

This property will be for their own use but it will not become their main residence until they retire. This could be in 25 years time. In the meantime my client will live in the "new residence" that is owned and built by the daughter.

Assuming that my client survives seven years after the gift, I am trying to work out on which figure IHT will be charged on on her death in the folowing circumstances:

1) The property is transferred, the main residence is demolished and a new residence erected on the site of the demolished residence, paid for by the daughter.

2) The main residence is demolished. The property is transferred. A new residence built on the site of the demolished residence.

3) The property is transferred. The main residence is demolished. A new residence is built but not on the site of the original property.

4) The main residence is demolished. The property transferred. A new property is built but not on the site of the original property.

Your observations will be gratefully received.

Replies (14)

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By Tax Dragon
07th Sep 2021 16:10

What a great game! There are loads more possible combinations. (I can easily get to double figures.) Here's one:

5) A new property is built not on the site of the original property, the property is transferred, the main residence is demolished.

Hours of fun for all the family.

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By David Ex
07th Sep 2021 16:21

I’ll be interested to read informed views as I struggle to see much difference other than the value of the transaction if the house has been demolished.

What was the thinking that gives rise to your alternative scenarios?

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Replying to David Ex:
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By WinterbourneAssociates
08th Sep 2021 09:48

My thought process was what value of the gifted property would be taken into account on death.
If the house was transferred and then demolished would the value on death for IHT be the value of that house as if it still stood.
If the house was demolished before transfer would the value at death for IHT be just the land value.
The question regarding the building a new residence but not on the site of the existing residence was a thought that the mother's estate could include the value of the new property that has been built and paid for by her daughter but lived in by mother.

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By Justin Bryant
07th Sep 2021 16:27

It's a non-starter re GWR.

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paddle steamer
By DJKL
07th Sep 2021 17:00

Not my area at all, so humour me, how does your client get around the reserved benefit re the land?

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Replying to DJKL:
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By WinterbourneAssociates
08th Sep 2021 14:37

I assume that there is a reservation of benefit. I am trying to find out how (if at all) the value of the property changes for IHT purposes if the gift is made in each of the different scenarios.

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Replying to WinterbourneAssociates:
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By More unearned luck
08th Sep 2021 15:35

With respect, In your reply to me of 14:11 you were still mentioning 7 years, so your assumption that GWR applies seems to be all of 25 minutes old. I suggest you subcontract this work to someone with a better understanding of the taxes involved.

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paddle steamer
By DJKL
07th Sep 2021 16:32

... ---...

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By The Dullard
07th Sep 2021 21:49

Works fine, as long as the parents survive 32 years.

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By More unearned luck
08th Sep 2021 10:40

Perhaps you should also turn your mind to CGT. The proposed gift will almost certainly exceed the permitted area and will certainly do so if the house is demolished before the gift.

If there is a gift that includes a building site and no house will any PPR be due at all?

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By WinterbourneAssociates
08th Sep 2021 14:11

Thanks for pointing this out. CGT aspect has been considered for the six acre disposal.
I am concerned about the IHT values that would be taken into account on death more than seven years after the gift and whether it is different in the four different scenarios assuming that mother occupies the new house rent free for the rest of her life.

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Replying to WinterbourneAssociates:
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By More unearned luck
08th Sep 2021 15:21

As others have pointed out, the GWR rules means that the land will be taxed at death regardless of how long she lives after the gift is made unless she moves out 7 years before death.

(HMRC helpfully explain what the word 'land' means at CG70205.)

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Replying to More unearned luck:
paddle steamer
By DJKL
08th Sep 2021 15:40

Depending on age/life expectancy /new build cost/land value etc there might be mileage in daughter lending funds to Mum to demolish house and rebuild, that loan then reducing Mum's Estate and at least ensuring any valuation uplift up to Mum's death possibly garners PPR relief.

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Replying to DJKL:
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By More unearned luck
08th Sep 2021 15:58

I quibble "up to Mum's death" should read "prior to Mum's death".

Mr Punch once offered sage advice to persons about to marry. The same advice can be given to the OP if he proceeds with one of his proposals, especially those that commence with demolition. .

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