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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am a resident of Jersey, in full time employment, and currently

Customer Question

I am a resident of Jersey, in full time employment, and currently looking at buying a property in the UK for my parents to live in. The house will be 100% owned by me, they will not be paying me rent and I will be covering the mortgage in full. They are currently in the process of selling their house and the intention is for them to transfer the residual equity from that sale to me, which I then top-up and use as the deposit.

Grateful for any thoughts on the tax implications of this - I have heard something about a 7-year rule regarding a potential UK tax liability on the 'gift transfer' if my parents pass away in that period.

Many thanks in advance.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

Your parents will be making you a gift. This creates a Potentially Exempt Transfer (PET) in your parent's estate. PETs run off on a taper over 7 years. In the event of your parent's demise within the 7 years the PET is added back to their estate for Inheritance Tax (IT) purposes and is the first tranche to suffer IT. If your parent's estate is unable to meet the IT on the PET it cascades down to the recipient for immediate payment. IT, of course, does not kick in until the deceased's estate exceeds 325K and the is taxed at a flat rate of 40% on the excess over that limit. It is possible for spouses to inherit their deceased one's unused IT allowance making a maximum of 650K a possibility. Protection against a PET is, of course, a decreasing term life insurance policy.

I do hope I have been able to throw some light on this matter for you.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3384
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 3 years ago.
I am unwell as Jeffrey Barnard was oft to say so I am going back to bed. Will be up by lunch time to follow up any queries you may have.
Expert:  bigduckontax replied 3 years ago.
Thank you for your excellent support.

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