My mother would like to gift her flat to my 2 brothers and I?

Hi Joe,

Does your mother's estate total more than the inheritance tax threshold? You are very likely to need professional inheritance tax planning and a family solicitor to assist you.

Also if your Mother needed any kind of care and was reliant on the state to pay you could run into issues of deprivation of funds, which could come back on to you.

Neil,

Thanks for your response, the property value currently is between £350 - £375k, it would be valued less at present due to a short lease of 64 years, which currently we are looking to renew. So the property in it's current state with 64 years lease, should just make the 325k threshold.

Joe,

Neil is absolutely correct. You will need to take specialist advice. In addition to the pitfalls that Neil has pointed out there are rules governing your mothers' gifting of the property and then continuing to 'benefit' from it (including continuing to live there). If you mother passes away within the 7 year lifespan of the gift (for IHT purposes) then you may find that it is treated as a 'failed gift' and you remain liable for any IHT calculated on the full value of the gift (at the point it was gifted) rather than the reduced values calculated from years 4 to 7 following the gift.

SB

Hi Joe,

That is the value of the property, but IHT takes into account the whole value of the estate so you would need to look at that too.

Thank you Steven and Neil, I am aware of the 7 year rule, hence I am trying to do this earlier.

My mother does not possess other savings or assets, so this would be the entire estate.

Joe, you are definitely doing the right thing. Best of luck. If you would like some professional advice I could put you in touch with the people I use. (I do not gain from any referals). Let me know if you would like their details.

SB

Reply to the comment left by "Steven Burman" at "20/04/2016 - 12:31":

Thank you Steven, that would be great if you can forward me details of the people you use.

Joe, contact Helen Smith at HFL Ltd on 01763 261366. They are based in Melbourn (near Royston) in Hertfordshire but have a London office where you can meet if necessary.

I have been through this exact same situation, so hopefully my comments are relevant. Joe, you don't say why your mother wishes to give her property away, but from your later comments it appears inheritance tax may be an issue. However if your mother has been married, she may be entitled to receive her husband's tax-free IHT allowance, in which case her estate could be worth up to around £650,000 and there will be nothing to pay anyway if the house valued at £350-375K is her principal asset. In which case, HMRC can bleat all they like about "deprivation of assets" or "continued benefit", but if there's nothing likely to pay, there'll be nothing to pay.

If your mother is only entitled to a single tax-free allowance of £325K, then there is a small IHT liability, and this won't fall away after 7 years if she continues to live in the property because of the "reservation of benefit" rules. The only way round this is if she starts paying you a market rate of rent, and this may not be affordable if she has a small pension: the rent should cost no more than a third or so of her after-tax income. If she can afford to pay rent, then she is acting like a normal tenant and has no reservation of benefit. If your mother if concerned at the loss of income when she pays rent, there is nothing to stop you "reimbursing" her by means of an annual or bi-annual gift from you and your brothers. The rent and the gift fall under two different taxation categories (unearned income and gifts) and it would help if they are not the exact same amounts, so there's no confusion between them. For example, don't have her paying rent once a month and you send it straight back to her via a standing order. Some people also think gifts are restricted to £3000 a year, but this isn't true: £3000 is merely the amount that is free of inheritance tax, so you are perfectly entitled to give her more than that. The allowance will only become relevant if you suddenly die and there is an IHT liability on *your* estate.

To show the gift of the house entails complete transfer of responsibilities, you will need to show you are paying for the upkeep of the property as well as receiving rent.

Of course none of these arrangements to minimise IHT will necessarily persuade the local authority that your mother hasn't deliberately deprived herself of her principal asset to avoid paying nursing home fees, if she ever needs to go into a home, but the longer the property is out of her ownership, the better. If she gives away the house and then needs to go into a care home 10 or 15 years later, you will have a strong case to argue that your mother could not have foreseen the need for a care home, and that therefore she did not deliberately seek to avoid the fees.

It will also help if your mother can show that she had a legitimate reason for giving the house to you and your brothers. For example, she could write a letter to you, stating that she easily has sufficient pension income now for her needs, that she has been struggling to maintain the property on her own, and that she wishes to give you the house to maintain and as a capital asset for the long-term benefit of you and/or your children.

Thank you Steven for the contact.

Tony thank you very much for the info, that's very useful information and great to hear from someone who has been through the process.

One question springs to mind, will there be stamp duty to pay if gifting the property to her children, and is the process similar to selling a property?