Can my parents give me their house while they are alive to avoid Inheritance Tax?
  • 11th Feb 2019
  • Article written by Hannah Durston
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It depends… The circumstances regarding your parents’ place of residence will have an impact on the tax position.

1: If your parents continue to live there rent free - this would be deemed a ‘gift with reservation of benefit’ and this means the value of the property will be included in their estate when they die.

2: If your parents do not live there, or if they pay you a full market rent, they will have to survive seven years from the date of the gift for the property to fall outside of their estate for inheritance tax purposes.

Other considerations:

1. If you have not been living in the property you were gifted, you could be liable to Capital Gains Tax when you sell it in the future.

2. If your parents need to receive care in the future they may go through a Local Authority financial assessment and previously-owned assets will be assessed as well as those that are owned currently. If the property was given away with the purpose of trying to avoid paying care home costs privately, this is deemed to be ‘deliberate deprivation’ of assets and the Local Authority have the power to claim care costs from the person that the assets were transferred to. There is no time limit on this rule.

Inheritance Tax generally:

1. Each individual has a tax-free allowance ( ‘nil-rate band’) of £325,000.  Anything passed on above that amount is potentially liable to 40% Inheritance Tax. Married couples and civil partners are allowed to pass their assets to each other tax-free. The surviving partner is allowed to use both nil-rate bands on their death, providing the first spouse to die inherited everything from the first to die. A married couple can therefore pass on £650,000 before Inheritance Tax is payable.

2. If property is being passed to direct descendants, each person gets an additional tax-free allowance (the ‘residence nil-rate band’) of £125,000 this tax year, rising to £175,000 in 2020. This allowance is also transferrable between spouses/civil partners.

For more information get in contact with Hannah here.