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Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.
May I ask are you domiciled in the UK or do you live abroad please?
We all live permanently in UK
Thanks. May I ask if you are married?
I am married but I would be doing this on my own
Thanks. Finally would you be putting all of the capital into the property but that you want make a gift of 1/4 to each of your three children? And...
Is your and your spouses combined estate (before buying this property) worth more than £650K between you?
Yes to all questions - I would pay for the house and the children would get 1/4 each on my death, having had many happy holidays, I hope. My husband and my estates are worth more than the inheritance tax threshold
Thank you. The starting point is relatively simple in that you can buy jointly with your adult children and be joint legal owners. From there you would need survive 7 years before the gift of 3/4 of the property would fall outside of your estate but there is taper relief from year year 3 of 20%, year 4 40% etc until year 7 of 100% so it is not all or nothing necessarily.
However the danger lies in the gift with reservation trap which provides that if you give a gift but retain a benefit in it then the gift is disregarded for IHT purposes and it is still treated as being in your estate for calculating tax due. To avoid this you will need to show very carefully that you are limiting your "enjoyment" of the property to legitimate rights as a 1/4 co-owner and not beyond this. HMRC may aggressively challenge the position if they see a chance to gain more tax.
Thank you. If one of us wanted to sell and the others did not, what would happen?
So each of us could use it for 3mths a year?
You you therefore need to ensure that a very careful joint ownership agreement was prepared which sets out a fair basis for determining how many weeks a year each of you are entitled to - I appreciate this would probably not be necessary in normal circumstances but you would need to treat this as if you are buying with strangers as a sort of time share arrangement in order to demonstrate to the Revenue that you are not retaining a benefit beyond your entitlement as a 1/4 owner and show that you have stuck to your entitlements.
In practice there is little to stop you all going together as long as it is documented that that week was used by the appropriate party. It is however necessary to treat this as a commercial arrangement despite it being family to guard against HMRC interest. If you rent the property out for certain weeks, care must be taken that that income goes to the person whose week it is or is otherwise split however you agree.
I see, that sounds possible. But could one joint owner mess it up by wanting to sell when the others wanted to keep it?
You will also give thought to what restrictions each of you have on selling as part of the joint owner agreement. You can for example include provisions that provide that no-one can sell their share for a minimum period of x years or until after a specified event or whatever you agree. If you fail to provide for such restrictions then any one owner can demand that the others buy out his share or failing which force a sale of the property at any time after purchase.
What you propose is perfectly possible but do not underestimate HMRC when it comes to looking at such an arrangement. If your estate is over the IHT threshold a tax officer will smell a potential tax prize with this arrangement and you will need to be able to show fairly detailed records of both occupation and distribution of any rental income received just as you would put in place if you jointly bought a house with friends in order to be guaranteed to defend against HMRC fully.
Thank you, XXXXX XXXXX my question. I'll discuss with the family now. Very helpful answers!