IHT

[Moosehoosenew]

You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?

[bluedonkey]

Would you still be living in it? Would you be paying rent to your kids?

Look up "Gift with reservation of benefit".

[genou]

You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?

One problem is that you will be treated as having gifted the value to the children , and will have to pay CGT on the basis that you received the full value of the house ( less the £10 ) minus its original cost. You'll still get pinged for IHT on the gift if you die within 7 years. So not the best move.

Edit: Shouldn't try to think while watching crap football.

[Lootman]

You have an asset, probably a house, you sell it to your kids for ten quid, I assume you cannot, but can you to avoid IHT?

One problem is that you will be treated as having gifted the value to the children , and will have to pay CGT on the basis that you received the full value of the house ( less the £10) minus its original cost. You'll still get pinged for IHT on the gift if you die within 7 years. So not the best move.

Agree it won't work as suggested. But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.

Other than the fact that owning property increases the IHT nil rate band, it is not a particularly useful asset for mitigating IHT. Selling in the market would give more options since cash is easier to move about and dissipate then real estate.

[genou]

But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.

But ex hypothesi the transaction is with a connected person. In which case you are required to replace the price actually paid with the true market value. So you'd be submitting a false return, which may not end well.

[scrumpyjack]

My aunt gave her riverside house near Kew Bridge to her sons many years ago. She then paid them rent to avoid the reservation of benefit rules. They got an estate agent to advise on the appropriate rent but had some difficulty getting the chap to understand that they weren't after a high rent!

[Gengulphus]

Another IHT rule that catches some schemes to artificially reduce the value of an estate may be of interest: the value of a gift for IHT purposes is the amount by which giving it reduces the value of the estate, not the value the gift has as an individual item. This can apply e.g. to complete sets of antiques - e.g. a complete antique tea service may be worth considerably more than the sum of the values of the individual teacups, teapot, milk jug, etc. The 'cunning plan' is to buy the complete service, distribute the individual pieces as gifts among your heirs as gifts at their values as individual pieces, and quietly point out to them that if they later pool their gifts, they can sell the resulting complete set for considerably more than their total declared value as gifts and split the proceeds. It fails to work because the actual IHT rules about valuation of gifts says that no matter how the pieces of the service are distributed as gifts, their total valuation will be the total loss of value to the estate, i.e. the valuation of the complete set.

Gengulphus

[pje16]

Can I sell my house to my son for £1?
https://www.webuyanyhouse.co.uk/blog/ca ... -1-110903/

[Lootman]

But selling a house for £10 is going to scream that something odd is going on. But what if someone sells a London home for maybe £100,000 less than it is worth? Then there is a good chance that nobody will notice or challenge that, and it will save £40,000 in IHT potentially. Plus some savings in stamp duty for the buyer.

But ex hypothesi the transaction is with a connected person. In which case you are required to replace the price actually paid with the true market value. So you'd be submitting a false return, which may not end well.

Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.

But my point was more that selling a house for £10 is much too blatant. The only way this idea might work in practice would be if it sold for just a few percent less than market, as that would be within the margin of error that any valuation might place on the property anyway. Attempting a retrospective valuation of a property potentially years later is not a precise science and there is probably some wriggle room there. You might also save on estate agent fees and stamp duty if the sale is to a connected person, which could justify a lower price.

As stated, a more effective approach is to sell the property in the market in the normal way, and then the resultant cash is much easier to finesse for IHT purposes.

[genou]

Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.

The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .

[Lootman]

Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.

The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .

Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.

This topic is about IHT and not CGT, so the issue only arises if the donor dies within 7 years, and then as an IHT issue only. And by then it would be the executor who makes the declarations and not the donor. The donor would have done nothing wrong - he just sold his house for a price he was happy to receive. It is what is declared post mortem that matters e.g. the value of the gift and any reservation of benefit.

[genou]

Technically it would not be a tax return that would be "false" in that case but rather an IHT declaration later on if the donor dies within 7 years.

The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .

Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.

This topic is about IHT and not CGT, so the issue only arises if the donor dies within 7 years, and then as an IHT issue only. And by then it would be the executor who makes the declarations and not the donor. The donor would have done nothing wrong - he just sold his house for a price he was happy to receive. It is what is declared post mortem that matters.

But the attempt to get an IHT advantage requires the creation of a Tax Return for CGT purposes ( because of the numbers involved ) . Which then requires the seller/donor to get a proper market value to put in the Tax Return. You can't sell "at a price you are happy to receive" to a connected person ( at least for the purpose of which numbers you return to HMRC ).

It doesn't legally work, and it must involve lying to HMRC at least once. The donor must "do something wrong" -- and then possibly depend on whoever deals with their estate to keep up the deceit .

There is nothing more to be said here at a practical level.

[doug2500]

Would the inheriting person also then be starting from an artificially low base causing their gain in the future to be much bigger than it ought to be?

Sometimes it's better just to take it on the chin than risk unforeseen consequences.

[Lootman]

The numbers involved in the house sale would generate a requirement to file a return. The overriding point is gifts at an undervalue of house can't be done without lying to HMRC at some point. Which is not Taxes ( Practical ) .

Yes but at least for the sale of a primary residence there would be no CGT due anyway, so it seems unlikely that there would be much scrutiny of that declaration at the time.

This topic is about IHT and not CGT, so the issue only arises if the donor dies within 7 years, and then as an IHT issue only. And by then it would be the executor who makes the declarations and not the donor. The donor would have done nothing wrong - he just sold his house for a price he was happy to receive. It is what is declared post mortem that matters.

But the attempt to get an IHT advantage requires the creation of a Tax Return for CGT purposes ( because of the numbers involved ) . Which then requires the seller/donor to get a proper market value to put in the Tax Return. You can't sell "at a price you are happy to receive" to a connected person ( at least for the purpose of which numbers you return to HMRC ).

It doesn't legally work, and it must involve lying to HMRC at least once. The donor must "do something wrong" -- and then possibly depend on whoever deals with their estate to keep up the deceit .

Just to be clear I was only suggesting that the sale price be set at the lower end of the range of what is reasonable. So for example one might get three quotes from estate agents and go with the lowest one. That way you can produce a document that backs up the sale price.

As a practical matter almost every taxpayer declares for CGT purposes the actual sale price and not some made up number. And since no CGT is due on a primary residence sale, that is almost always accepted at face value.

So the real issue here is how the executor handles the matter post mortem if and only if the donor doesn't live for 7 more years.