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Sam
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In order to avoid the possibility of their home being used

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In order to avoid the possibility of their home being used to pay for any future care home costs my elderly parents want to transfer the ownership of a house they intend to buy into mine and my two siblings names. In addition to the house that i already own, and live in, i would then have a 1/3 share of my parents house. My parents would then live in the property rent free for the remainder of their lives. What are the tax implications of this?
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.
Hi
Thanks for your question I am Sam and I am one of the UK tax experts here on Just Answer.
This would have tax and Inheritance tax implications as they do not plan to pay you any market value rents to live in this property.
First your parents would be subject to pre owned asset tax - which is an annual fee on the basis that they make use of a property they have gifted.
For Inheritance tax purposes it would be treated as a reservation of benefit, which means the value of the property would still be included for Inheritance tax purposes on your parents estate.
Plus the council would still treat this property has being your parents and expect it to be used against any future care home fees.
The way to avoid this, is for your parents to gift the property prior to moving into it (if possible) and then pay you and your siblings market value rents - this would then ensure
1) that there was no annual pre owned asset tax to pay
2) It would be excluded from Inheritance tax, as long as they both survived more than 7 years form the date of making the gift
3) The council would have a harder claim on the property - however I should advise that if the need for a care home was within the next 5 years, and that your parents were healthy and well at the time of this transaction or the council could argue that there was a deliberate deprivation of assets and refuse assistance, so I have also added a link here from ageuk regarding this factor.
http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS40_deprivation_of_assets_in_the_means_test_for_care_home_provision_fcs.pdf?dtrk=true
The downside of this arrangement is that you and you siblings would then need to declare the rental income to HMRC - and would have a tax consideration on this and of course, would your parents have the funds to pay the market value rents.
But that is the position as it stands.
I have added a link here re the position of transferring property into children's names and the tax position and Inheritance tax position
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm#3
So I am sure you can appreciate any undertaking of this decision should not be ta***** *****ghtly, for all the reasons advised.
Let me know if you have any follow up questions or wish me to expand on any of the main factors.
Thanks
Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13694
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 2 years ago.

They are buying the house for £250000 and their other assets are less than £25000. So i believe inheritance tax will not be a problem. The new house will be bought in our names prior to them moving in. Apart from any issues with the council should they go into care, they are both currently well, I understand that the main issue will be the pre owned asset tax. Is my understanding of this correct? Would the property be subject to capital gains tax when my siblings and I sell in the future?

Expert:  Sam replied 2 years ago.
Hi
Thanks for your response
Yes, you are correct, Inheritance tax will not be a problem and as the property is actually being bought in you and your siblings name, this also avoids the need for rents to be paid and pre owned asset tax as the property will be deemed to be you and your siblings from the outset.
But, then yes, there will be a capital gain position on you and your siblings on future sale of the property - as at that time a property that has never been any of your main residences for that period of time, when it was your parents main residence, will exist.
Sadly there is no relief due for dependents relief any more, which used to allow the purchase of a property for a dependent to be exempt under the private residence relief rules - this ceased in 1988
Let me know if you have any further questions, however it would be appreciated if you could take the time to rate/accept the answer, as this ensures Just Answer credit me for my time.
Thanks
Sam
Customer: replied 2 years ago.

Sam,

Many thanks. If i were to sell my property and used the proceeds to buy the other 2/3 from my siblings and then lived in the property as my main residence, along with my parents. Would we avoid the capital gains tax and any possible issues with the council etc. I expect that i wouldn't be able to do this until at least 6 months after receiving the 1/3 share of the property so in that time the market value of it may have increased. My own property is worth c£300000 so i would also have funds left over after paying both my brother and sister for their share. Does this matter?

Expert:  Sam replied 2 years ago.
Hi
Thanks for your further question, which as in line with the position you ask after, I will answer on this same question thread. But do note that Just Answer works on the premise of additional information is usually asked for as a new question or an additional services report can be raised asking for further funds. But as this is your first time on Just Answer, and the question is still very much in line with the original requirement (although the answer offers additional advise) I shall proceed on this occasion - so there is no further charge to you.
This is a viable option but if the property were to increase in value for your siblings between the date of purchase and the date of sale to you, would then give rise to a capital gain position for them. The first £11,000 of their share of the gain would be exempt as this is the individuals annual exemption allowance.
But you too would face a capital gain on this new purchase, when in the future you were to sell, as you advise there could be a period of 6 months before you could make it your main residence, so this period of time would always remain a small consideration on the gain made in the future.
The fact you would have funds left over from your sale is negligible, as your own property would (I assume) qualify fully from capital gains exemption, if this had been your main residence throughout ownership.
And just a thought as you have 18 months from the time you move out of a property to the sale date - of which this further 18 months is also covered under the private residence relief rules (so no capital gain consideration on a sale of a main residence, for up to 18 months from the date of departure) it might be prudent to move into this new purchase straight away , then ensures sale o your existing main residence within 18 months of moving out.
Thanks
Sam
Customer: replied 2 years ago.

Sam,

Many thanks. I definitely have a better understanding of things now, so no more questions at this stage However, i did think that i'd signed up for a free trial whereby the number of my questions were not limited. Apologies if this is not the case.

Regards

Paul

Expert:  Sam replied 2 years ago.

Hi Paul

Thanks for your response

We experts do not get involved with the subscriptions side of matters, but what will happen in under the free trial - Just Answer ensure us experts still are paid via their funding for the questions we answer, which are rated/accepted

So new questions, new posting - Thanks Sam

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