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I am looking for some inheritance tax advice and would be grateful if anyone has any good ideas.
I had a long discussion with my parents today. As well as going into buy to let myself in the 1990s I convinced my parents to do it at the same time and they now have quite a valuable portfolio of properties in London. This has performed brilliantly for them but time is a horribly cruel thing. Fast forward 20 something years and the portfolio is now beginning to be a burden on them, rather than doing anything for them. They spend hardly any money on themselves (much to our frustration) but as they say, they don't really want anything. They long since cleared their mortgages, so the rent builds up in the bank as do their pensions. They are certainly in a good situation, but despite this, my father loses sleep every night worrying about the smallest of things and is the first to admit that he really struggles to do the necessary things in his let properties that he once would have regarded as trivial. They are currently trying to refresh a flat and they seemed so stressed; it is awful to see.
My mother is scared stiff of my father suddenly dropping dead and her being left distraught and needing to deal with everything. He has come close to it on a few occasions, has a heart condition, and is waking up with chest pains. As a family we want to help but don't know what to advise on so many levels.
They wondered whether they might be wise to start passing down properties now but have no clue how best to do this. Is it true they can pass properties down without triggering any immediate tax and no IHT if they survive 7 years, and don't retain any benefit from the properties concerned? They did think of selling and passing the money down but then they would have to pay the CGT right now and there would still be the risk of IHT on top.
I am one of 5 children but fortunately none of us actually need the money. I wondered whether it might be sensible to pass each property to a group of 5 of us as multiownership of each one could make CGT better if and when we later sold them off as a family one property at a time later? (5 allowances for each deal). In fact, one better, I suggested that my parents skip me and pass my share directly to my 4 children as it will work out better in the long run as I will find myself in my parents' position anyway in the blink of an eye.
I don't know how many of their properties they might pass down. I assume we could never pass the rent or anything back to them without problems though? They wouldn't need it, but what on earth happens if one of them ends up in a £1000+pw care home though and we paid. How would that be regarded?
Does anyone have any sensible strategies they would care to share? Tbh none of us like the idea of any of this as we all want my parents to live forever but my father is keen to do the right thing by his family and has asked me to give some thought to it.
Are we missing something clever?
Your poor parents need to get rid of their worries without delay.They must sell all their properties ASAP..The 7 year PET does not apply to gifted property however they could gift you the sale proceeds
That is not correct - a gifted property is subject to the usual PET rules so there is no need to sell & gift proceeds.
I wish you were correct but you are not otherwise i will sack my top notch advisors
This article supports my view unless the IHT rules have changed since 2016 ?
I have been unable to connect to the link but i reckon you are confusing a principle residence with btl where CGT is a consideration
Property gifts count as a "potentially exempt transfer" under the inheritance tax rules. This means that they can be made inheritance tax-free as long as the giver lives for seven years afterwards.
After three years the tax amount falls - by eight percentage points each year from the full rate of 40pc - until the eighth year, after which the property is out of the previous owner's estate for tax purposes.
Don, the 7y rule apply for IHT, residential or BTL is irrilevant for 7y rule.
This is my understanding too - otherwise how is a lifetime gift of property treated for IHT purposes on death if it isn't a PET ?
If it can simply be gifted, CGT & SDLT paid (if applicable) & it is then outside an Estate for IHT purposes then everyone would do it !
Having looked into it, it does seem that gifted btl property does come under PET rules but the downside being CGT crystallising and SDLT if there is a mortgage.
This is a great topic James - one that will no doubt be consuming the minds of a great many of us.
If CGT and SDLT (if there is a mortgage) applies, that is a significant hit as well. Especially is the properties are based in London and were purchased some time ago.
The 7 year pet only doesn't apply when the giver still has an interest in the property such as still living in it or receiving the rent.