IHT/CGT

IHT/CGT headache

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H+W client sold their main residence and purchased a house A 7 years ago for £350K but put their disabled sons name on the title deeds! H+W live in house A and pay all the bills, etc as if it were their main residence. They don’t pay any rent to disabled son who lives in rented sheltered accommodation in another town and rarely lives with them.

They are now making their wills and also want to effect a transfer of some share of House A to 2 of their other children in their lifetime, they are scared of leaving the whole property to the disabled son. In the meantime, House A has a latent gain of £170K since purchase. H+W also purchased an investment flat B for rental purposes. H+W net worth with House A will be just over £1m for IHT purposes. There is no PPR for H+W on any of the properties for CGT or residence nil rate band for IHT at the moment.

  1. House A is caught under GWR for IHT purposes? I’m not sure that the pre-owned assets rule applies here?
  2. Disabled son – is House A PPR for him but he doesn’t live there?
  3. There will be CGT to pay if some share in House A is transferred/gifted to other children form disabled son or fully transferred back to H+W?
  4. Paying a market rent to son(s) is out of the question and even then, the 7 year rule for PET would start from first rental.

Any suggestions on how to untangle this for minimising CGT/IHT as House A does not legally belong to H+W? Thanks in advance.

Replies (5)

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By David Ex
08th Aug 2023 12:30

Might (or might not) be helpful to ask what the original transaction was intended to achieve.

In any event, they need to speak to a solicitor first. They want to transfer shares in a property they apparently don’t own. If they have some PoA for the son, they need to tread very carefully and ensure they are acting in accordance with that.

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Replying to David Ex:
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By brumsub
08th Aug 2023 13:03

'Might (or might not) be helpful to ask what the original transaction was intended to achieve.'

I assume they wrongly thought it would mitigate IHT.

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By Hugo Fair
08th Aug 2023 12:33

"Any suggestions on how to untangle this for minimising CGT/IHT as House A does not legally belong to H+W?"
... start by appointing a solicitor who's well versed in property matters - you need to first find out who really owns what (and whether any trusts were created etc), before considering options and their tax implications.

BTW you don't say in what capacity you are raising these questions (friend, member of family, retained adviser, or ...)? And if the latter, which parties are your clients?

N.B: "the 7 year rule for PET would start from first rental" is wrong - the 7 years counts backwards from the date of death (so even 20 years becomes irrelevant if it is followed by a couple of years prior to death when no rent was paid).

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Replying to Hugo Fair:
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By brumsub
08th Aug 2023 13:07

'N.B: "the 7 year rule for PET would start from first rental" is wrong - the 7 years counts backwards from the date of death (so even 20 years becomes irrelevant if it is followed by a couple of years prior to death when no rent was paid).'

My understanding is that once market rent starts to be paid, the reservation of benefit is lifted at that point and it then becomes a PET (at that point).

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By taxdigital
08th Aug 2023 13:18

Do you think the disabled son has/had the capacity to contract?

Following on from the above Q, do you see an arrangement whereby the beneficial ownership is retained by parents whilst the legal ownership lies with the son?

Can the parents sell something which they don’t own?

POAT charge may be in point and depending on more information CGT too.

Start with a solicitor as others have said.

And with that I’m done for the day.

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