Property Succession to Children – me

Hi Theo,

This raises so many questions I am assuming you have not sought any qualified, regulated and insured advice yet?

Is there a will, what is the value of your parents estate, do you have siblings, what is your parents tax status, how much is the mortgage, is there any inheritance tax planning already in place? etc etc.

Without knowing anything else generally just transferring a property into joint names will not achieve the desired results.

Reply to the comment left by "Neil Patterson" at "14/10/2015 - 09:20":

Neil is right - it's hard to make any kind of sensible comment without having more detail.

Just adding you to the mortgage won't make any difference at all to inheritance tax: all it does is make you co-responsible for paying the mortgage. If the mortgage still exists when your parents die, you will simply become solely responsible for paying the mortgage interest and debt. What really matters for IHT and income tax purposes is not the mortgage, but *ownership*, as detailed on the title deeds at the Land Registry. This presumably remains with one or both of your parents, in which case the property will be included in their estates when they die. If your parents are married and your mother dies first, your father will inherit tax-free, but when he dies without remarrying, the full value of the property will be included in his taxable estate.

The only way to avoid IHT on the property will be if your parents gift you the entire house and then die over seven years later. However this would require the mortgage to be paid off, or you would have to remortgage in your own name.

As regards your second question, just putting you on the mortgage doesn't entitle you to any of the rental income: your parents are the owners, so they would normally receive all of the income. It is possible to separate ownership from who receives the income by using a Declaration of Trust, where the owners of the property sign a statement that they wish the rental income to be paid to another person, who will then be taxed on it. So, for example, your parents could give you the property to remove it from their estate (after seven years), but you could sign a Declaration of Trust that you wish them to receive the income until their deaths. Or if you are married and your spouse is a non- or lower-rate taxpayer, you could state that you wish the income to go to them, as it would be more tax-efficient.

But all this depends on your parents' overall income, their need for savings to cover possible nursing home fees, your own anticipated future needs, and so on. You really do need to take some independent financial advice!

Hadn't really considered the situation where the mortgagees are not necesarilly the owners, and a bit surprised that mortgage companies allow this?

Is it that they have first charge, so don't care? Maybe it doesn't happen as there is no benefit to the non-owner mortgagee?

Could introducing a non-owner mortgagee be used to switch one's tax charge to someone who will be taxed at a lower rate?

Normally Lenders insist on the names on the title being the same as on the mortgage, but I suppose adding a name to the security does no harm as it is joint and several.

Reply to the comment left by "Chris Harris" at "14/10/2015 - 12:34":

Yes, Chris, I'm making all sorts of assumptions, as Theo hasn't given enough information. I make no claims for expertise: I was just using an example of a typical arrangement where inheritance is via direct family only.

Mortgage companies are sometimes wary of 3 names on a mortgage - we have a property shared between 3 of us but the mortgage is only in the names of 2 of us.

If your parents gave the property to you, they would get an immediate 20% tax charge with a further 20% payable on their estate after death (or pro rata depending on length of time since the gift was made). Also I don't believe your parents can still benefit from a property they have given away but this might only be applicable when placing property into trust which is what my family have just done. There are many twists and turns to the legal/tax system and one slight difference to circumstances can change the rules so best to speak to a professional.

Reply to the comment left by "Pam Thompson" at "14/10/2015 - 21:10":

I am a bit confused by your comment Pam, what do you mean an immediate 20% tax charge - CGT? In which case it might be 28%. They can benefit from the property but would still be theirs in terms of IHT. But CGT is something that the OP needs to consider

Reply to the comment left by "Puzzler " at "14/10/2015 - 21:54":

I don't think the tax charge was related to CGT. We explored my mother gifting her rental property to her children but was told there would be this immediate 20% tax charge. Equally if she sold it, there would be CGT to pay on the difference between purchase and ultimate sale price (18 or 28% depending on personal tax rate). We eventually opted to put it into trust and get hold over relief on the CGT. This may have been possible as a result of my father's death and subsequent IHT planning. The 20% charge was also mentioned by our solicitor. It all gets quite confusing and everyone has a different understanding of particular advice. I can't point you to any HMRC info as it doesn't seem to say anything that would be relevant. Good luck with your planning - it is a bit of a head spinner!!