If my father gifted his house to me, how long would he need to live for to ensure the taxman could not claim back taxes between the gift date and death?
A lifetime gift more than seven years before the death of the donor will usually be the subject of the lifetime gift exemption. If this was a gift of money or any other asset, once the seven years had elapsed from the date of the gift then the asset would no longer form part of your father’s Estate in the event of his subsequent death.
However, with houses it is slightly more complicated in that you must beware of the “Reservation of Benefit Rule” whereby the Revenue will regard your father as having reserved an interest in the asset which he has given away, as he will continue to live in the property, without paying any commercial rent to you, the new owner.
In such circumstances the effect of the Reservation of Benefit Rule is that the Revenue will regard your father as having reserved an interest in the asset which he had previously gifted to you, the consequence of which will be that, for tax purposes, the Revenue will include the value of the property at the date of your father’s death in the overall value of his Estate.
Should your father’s Estate, inclusive of the value of the house, be below the Inheritance Tax threshold, then his gift will not have any adverse effect on the tax position as even if the value of the property is written back into his Estate, it will not be of sufficient value to result in any Inheritance Tax being payable.
If, on the other hand, the property is of substantial value, what may appear to be a substantial saving in Inheritance Tax as a result of the gift may not necessarily be available despite his lifetime gift should such gift fall foul of the “Reservation of Benefit Rule” .
* Emyr Pierce is Managing Director of Emyr Pierce Solicitors in Rhiwbina, Cardiff, Western Mail Conveyancer of the Year, specialising in Domestic and Commercial Property. Contact www.emyrpierce.co.uk or email firstname.lastname@example.org