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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4198
Experience:  FCCA FCMA CGMA ACIS
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My parents who are in their early Eighties own a property valued

Customer Question

My parents who are in their early Eighties own a property valued at £950,000. They would like to gift it to me so as to avoid my paying inheritance tax. I understand I would need to own the property for seven years before I am cleared from that. I also understand that there is a new family home allowance (due in 2021) but being phased in. Would it be better to divide the property into four being both my parents and two siblings (to come under the £325000 allowance) and when one of my parents die, they will only be subject to 1/4 of the property value or would it be better to gift the whole property. I will be living at the property although I own another which my son lives in.
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. A gift of this nature will create a Potentially Exempt Transfer (PET) in your parents Inheritance Tax (IHT) affairs. PETs run off at a taper over seven years and in the event of a death within this period are added back to the deceased's estate for IHT purposes. PETs are the first to suffer IHT and if the estate is insufficient to meet the IHT on the PET then the liability cascades down to the beneficiary for immediate settlement. IHT kicks in at 325K (plus any inter spousal or charitable bequests) and is at a flat rate of 40%. The new family home allowance is coming in progressively between 2017 to 2020 and will increase the value of a family home which can be passed on to children to one million by the latter date. You could make the property split as you suggest, but the danger is if the parents and the children fall out; it does happen. The classic defence against taxation on the PET is a reducing term life insurance, but at your parents' age premiums would be prohibitive. You have two years from the acquisition of the new property to elect to which of the houses you own is to be your main residence for Private Residence Relief (PRR) which relieves Capital Gains Tax (CGT) at 100%. I do hope that I have shed some light on the position.