When your home is not your house
04 Dec 2009
It became increasingly popular a few years ago for elderly parents to discuss the possibility of transferring their house to their children to save Inheritance Tax upon their death on the condition that they carry on living there.
Such a scheme was fraught with difficulties and dangers; what happens if a child gets divorced, dies or were to become bankrupt whilst one or more of the parents were still alive and living at the house. Who would happen to the home and to the elderly parents?
And where the parents continue living in the house, treating it as their own home, there was always a question over whether transferring the home would save Inheritance Tax anyway?
In many instances it would not. The rules under which the Revenue operate state that if you give something away, particularly property, but continue to benefit from it then, upon your death, its value would be included in your estate no matter when you tried to give it away. There is no seven year period.
These gifts are called ‘Gifts with Reservation of Benefit', or GROBS, and simply did not work unless you agreed with the Revenue to pay an amount of tax each year calculated under the Pre-Owned Asset Tax (POAT) rules based upon a notional rent being received. It is all very complicated.
Now with the new Inheritance Tax rules' potentially increasing the amount at which Inheritance Tax starts to be paid for married couples leaving property to their children, these schemes have fortunately become less popular thereby ensuring that your house remains your home.
Richard can be reached on 01892 502392 or by email: rtheobald@bussmurton.co.uk