Inheritance Tax Archives

Jan 27

What happens in a jointly owned home if one person sells their half of the property?

Three years ago my mother (who is now 79) put my name on the deeds to her bungalow so that we owned it in joint names. If mum needed to go into residential care would she have to sell it to fund her care and what happens to my half?

There is excellent guidance available on the Age Concern website with regard to whether or not such a gift into joint names three years prior to entering into residential care would amount to a dissipation of assets.

In other words would it be a transaction that could be questioned by the Local Authority whereby it could be argued that your mother deliberately transferred the property into your joint names in an attempt to avoid having to pay Care costs. If it was deemed that this was the case, then the gift three years previously would be capable of being overturned and the property could be sold with a view to funding your mother’s Care.

If you lived there with her prior to, and since, the date of transfer into your joint names then obviously there would be an argument for saying that your mother was doing so to protect your position as you had lived there for some time and presumably contributed towards its maintenance, repair and outgoings.

I would strongly advise anyone considering these matters to consult carefully the websites of Age Concern and other organisations where invaluable and useful information can be obtained on this complex subject or take formal advice from a lawyer specialising in this field.

* 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 law@emyrpierce.co.uk

Nov 8

Should I sign a pre-nup before living in my husband’s house?

I am getting married in five months and we plan to live in a house which was bought for my future husband by his parents. They are suggesting we sign a pre-nuptial agreement to ensure their investment remains in their family in case we separate. Is this something I should agree to?

Prenuptial Agreements are a little mercenary and can cause suspicion from the outset which is not always good for one’s relationship! It may be better to simply view it from a basic property ownership point of view as if you were not getting married at all. In those circumstances there are two issues which arise.

If it was a genuine gift to their son then it may be important for Inheritance Tax purposes for this gift to continue in time – particularly if they gifted the property say 5 years ago – as once a period of 7 years has expired since the gift the value of the gift falls outside the Estate of the in-laws in the event of their death. This may, therefore, have substantial tax savings.

The only way that they can ensure that you agree from the outset that you have no intention of claiming any interest in this property is to enter into such a pre-nuptial agreement recording this intention. Your rights as a wife may still afford you certain rights of occupation etc that may benefit you – regardless of any such agreement and you need to seek specialist advice before doing anything at all.

Alternatively, your in-laws could take a charge over the property for the full value of the purchase price, which means they retain an interest in the whole amount that they advanced to enable the property to be bought. However, this will imply that the purchase monies were not a gift from your in-laws.

If they at some time in the future (after you have been married for some considerable time) wish to release that charge for no consideration then at that time it would amount to a gift and the 7 year rule would start to run from that date. Should you separate then the in-laws’ investment is preserved as they still have a charge on the property.

Oct 25

When does property become subject of the lifetime gift exemption?

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” .

Oct 19

Transfer of land is a lifetime gift to son

I own a large plot of land in West Wales which I want to share with my son. Do I need to re-register this or will it be seen by the taxman as a gift?

If you wish to transfer the plot into the joint names of yourself and your son, this is effectively a lifetime gift of one half of the value of the plot. Provided you live for seven years from the date of the gift, then the value of this gift will not be taken into account in the overall value of your Estate for Inheritance Tax purposes on your death.

However, your son will need to be aware of the possible charge to Capital Gains Tax in the event of the value of his one half share in the plot increasing substantially in future years.

In view of the fact that it is a lifetime gift, a transfer into your joint names will not attract Stamp Duty Land Tax even if the value of the one half of the plot exceeds £175,000. The gift by way of Transfer will then be registered by HM Land Registry in your joint names.

May 30

More on transferring property to children

I read with interest your article on the 16th May 2009 dealing with the transfer of property to children to avoid the property being sold in the event of having to go into care. Your comments would appear a little general. Can you be more specific?

As mentioned previously, if this area of the law causes you concern then you must immediately consult a solicitor.

The reason for making this opening statement was that brevity prevents me from dealing fully with a number of complex legal issues. The transfer of assets and payment for care is a very complex area. It is true that transferring an asset out of your name does not necessarily mean it will not be taken into account in any means test undertaken by the local authority or the Pension Service when assessing a resident’s suitability for assistance.

Both the local authority and Pension Service will look for evidence of any deliberate transfer of an asset out of an individual’s ownership in an attempt to put himself in a better position for obtaining assistance. There is extensive case law on this subject and excellent and accurate guidance on this complex area is available from Age Concern in their Fact Sheet 40 (www.accymru.org.uk).

This deals extensively with the definition of ‘deliberate deprivation of capital,’ instances when deprivation is deemed to be ‘deliberate,’ and the local authority’s Powers of Recovery in circumstances where it is believed that there has been a deliberate attempt on the part of a resident to transfer assets out of his/her possession in order to put him/herself in a better position to obtain assistance.

• Emyr Pierce is Managing Partner 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 law@emyrpierce.co.uk

May 16

Transferring your house to your children

How do you deal with transferring your house to your children while continuing to live in it, in order to avoid having to sell the property should you have to go into care at a later date?

If you are thinking of doing this then you should immediately consult a solicitor as this is a fairly complex issue. Provided property is transferred a substantial time before entering into care – and 12 months would appear to be a minimum period – the asset will no longer be deemed to be yours when assessing your contributions towards accommodation charges in any Local Authority Home. There are, however, Inheritance Tax implications of gifting the property to your children while continuing to live there. If your Estate is unlikely to be a taxable one, the fact that the Inland Revenue will regard your continued occupation of the property rent free as a Reservation of Benefit – and regard the property as yours at the date of your death for Inheritance Tax purposes – will not have any adverse consequences as there will be no Inheritance Tax payable if the value of your Estate is below the relevant threshold.

You should also ensure that your right to continue to occupy is protected once you have given your property away. This should be done by taking a Lease for Life back from your children which will protect you should they want – or be forced – to sell.

• Emyr Pierce is Managing Partner of Emyr Pierce Solicitors in Rhiwbina, Cardiff, Western Mail Conveyancer of the Year, specialising in Domestic and Commercial Property.